AI productivity gains will be real but path will be uneven

Building the infrastructure for artificial intelligence will be a bumpy process but for a select group of careful investors, it will be a profitable one, says Corrado Tiralongo, chief investment officer with Canada Life Investment Management.

Speaking on the Soundbites podcast this week, Tiralongo said not all early investors will come out on top. In times of transformative technology, buying into the euphoria can exact a heavy price.

“In comparing today’s AI cycle to past infrastructure booms like railroads and fibre optics, the lesson is remarkably consistent. The infrastructure succeeds. The first wave of investors often doesn’t,” he said. “Railroads transformed economies but bankrupted early operators. Fibre-optics now power the internet, but their initial owners absorbed heavy losses. AI is following the same path.”

Like railroads and the internet, artificial intelligence is clearly a transformative technology, Tiralongo said.

“The productivity gains will be real, but the path will be uneven,” he said. “It’s helpful to separate the revolution from the investment cycle.”

Part of that investment cycle is a period of heightened expectations and grandiose promises, he said.

“The tone and behaviour of the market make it clear we’re in the euphoric stage,” Tiralongo said. “When executives describe AI as more profound than fire or electricity, the language gives it away.”

He suggested advisors would be wise to maintain their exposure to the artificial intelligence theme but broaden it from the headline infrastructure builders to the diversified beneficiaries in software, semiconductors, and companies using AI to enhance returns on capital.

“The winners won’t be the firms that spend the most,” he said. “They’ll be the ones that turn AI into sustainable earnings over time.”

Valuations have run ahead of the underlying cash-flow profile in several areas, he said, and feedback loops between performance, media attention and capital flows are visible. Investor sensitivity to yields has increased, and the market is starting to react to slowing momentum.

But that doesn’t necessarily mean we’re in a bubble.

“What we have is a narrative bubble, not a balance-sheet one,” he said. “Returns are still grounded in adoption, not just hope. For advisors, the message is balance: maintain exposure, but avoid concentration.”

Tiralongo said investors need to focus on fundamentals, even as hyperscalers race to outspend each other on data centres, chips, and power.

“The fear of being under-invested is stronger than the fear of overspending. Looking at hyperscaler earnings this year, we see both undeniable strength and visible strain,” he said. “Companies that outperform pace their investment.”

There is something to be learned from herd behaviour here, he added.

“The cycle follows a familiar psychological pattern. Everyone moves together — investors, corporates, even governments — but the correction phase never happens as a herd. It happens gradually. One company hits physical constraints. Another realizes monetization is slower than expected. Investors notice margin pressure. The adjustment becomes a series of individual realizations.”

In this light, it is clear why volatility has risen.

“The enthusiasm was collective. The reassessment is gradual.”

**

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.