Portfolio perspectives

Positioning for the next wave of AI

In this edition

• While investors remain focused on AI builders and infrastructure providers, history suggests the largest long-term beneficiaries of transformative technologies often emerge later.
• Companies that successfully use AI to improve productivity and profitability may ultimately capture more value than many of the builders of AI.
• Broad diversification remains critical, and out AI Portfolio X-Ray can help advisors identify opportunities for the next phase of AI adoption.

The next wave of AI investing may look very different

Champion surfers often appear to have a sixth sense for waves. While the pack is focused on the wave already breaking, elite surfers are studying currents, wind patterns, and the energy of the ocean to anticipate where the next opportunity may emerge.

Investing during periods of technological change requires a similar mindset.

Today's market is understandably focused on artificial intelligence. But many advisors and investors are concentrating on what's working right now without considering how short-lived that might be and what the next winner could look like. The key question for advisors isn't whether AI will change the economy; it's which companies will ultimately capture the value in the years to come.

Riding the current wave of the AI trade

When we look at markets today, an interesting dichotomy has emerged. Rather than being driven by a single dynamic, we see markets chasing fear and FOMO simultaneously. On one side, many are piling into the hyperscalers and companies benefiting from the buildout of AI infrastructure. On the other, concerns about inflation, geopolitics, and stretched valuations have driven interest in commodities, alternative investments, and ultrashort fixed income as a way to manage risk.

Many advisors have joined the chase, increasing exposure to growth stocks and more than doubling allocations to semiconductors over the past five years while favoring shorter duration fixed income and alternative investments.¹

Looking beyond the builders to the beneficiaries

AI may prove to be the next great transformational general-purpose technology. That's certainly the foundation of our economists' long-term outlook. But it's important not to confuse AI's economic promise with market returns—especially for the small group of today's AI hyperscalers.

History offers an important lesson—from railroads and electricity to automobiles and personal computers, the companies that pioneered a technology often benefited first. Yet they didn't always create the most value for investors over the long run. Vanguard's research suggests that the biggest beneficiaries tend to emerge later and come from unexpected places.

Figure 1: What history suggests about transformative technologies

Value stocks tend to outperform as new tech spreads through the economy.

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Sources: Vanguard calculations, based on data from the Yale School of Management and the Ken French Data Library, as of March 31, 2026.

Notes: Equity returns are analyzed across historical general purpose technology (GPT) cycles using a regime based framework. Each quarter from 1900 to 2023 is classified into one of three regimes—GPT emerging, GPT spreading, or other—based on the behavior of three megatrend variables: transformation, efficiency, and augmentation. These variables are calculated by the Vanguard Megatrends model. A GPT emerging period is identified when the transformation variable is rising, signaling the early adoption and deployment of a new GPT. A GPT-spreading period is identified when transformation momentum has peaked, but efficiency and augmentation continue to improve, reflecting broader diffusion across the economy. Regime classification is based on average changes in these variables over the prior five years. Market refers to Fama-French market factors and value-growth returns refer to Fama-French value factors. Industry concentration is calculated as the Herfindahl-Hirschman Index (HHI) of the Fama-French twelve industries.

We believe many of the long-term beneficiaries of AI may be those companies that could leverage AI to improve productivity, grow revenues, and create new products, services, and possible even new industries.

Consider health care, financial services, and other parts of the value sector of the market as areas where we see this new technology making an impact. With labor shortages in health care, AI can help replace administrative tasks and give medical professionals more time to spend on direct patient care. In financial services, insurance companies can use AI to detect and reduce insurance fraud. Over time, the benefits may show up not in headlines about technological breakthroughs but in stronger profit margins, higher productivity, and faster earnings growth.

Figure 2: AI may help narrow the gap between value and growth

Value firms may have greater opportunities to improve productivity and profit margins.

Sources: Vanguard calculations, based on data from Bloomberg, as of June 30, 2026.

Notes: Value is represented by the MSCI USA Value Index and growth is the MSCI USA Growth Index.

While we don’t know for sure when the tide will turn, we are watching for productivity and earnings growth in the value-oriented portions of the market today. Value may offer exposure to the long-term opportunity associated with adoption of AI while potentially providing a smoother ride through periods of market uncertainty.

The case for diversification

So, what are the best ways to gain exposure to the winners of tomorrow? For most advisors, the answer starts with broad diversification. A broadly diversified portfolio can help capture future winners during periods of technological change while providing flexibility to direct new dollars toward areas that may benefit most from AI-driven productivity gains.

NVIDIA provides a useful example—following the collapse of the tech bubble, it entered the S&P 500 index as a relatively small company known for graphics chips used in gaming PCs and high-end computers used by engineers. Few could have predicted the role it would eventually play in the AI revolution decades later. By having exposure to the broad market, an investor who had placed $100,000 in the S&P 500 at the start of 2003, following the collapse of the tech bubble, had about $25 in NVIDIA. Over the next 20 years, that $25 grew to more than $60,000.²

Investors didn't need to know exactly where the wave would form. By owning the broad market, they benefited from NVIDIA's success long before its potential became obvious. That's one of diversification's greatest strengths: It provides exposure to future winners before their potential becomes widely recognized. A strategy like this might start with Vanguard Morningstar Total Stock Market ETF (VTI) and Vanguard Total International Stock ETF (VXUS) to give broad global exposure to the entire equity market.

Broad diversification can serve as the foundation of an AI-aware portfolio. From there, advisors can consider whether incremental dollars should be directed toward areas they believe may benefit most from broader AI adoption.

Positioning for AI adoption

When most advisors think about positioning client portfolios for the success of AI, they usually think about growth stocks, technology companies, and AI infrastructure. But if you focus on the users instead of the innovators, that leads you away from the pack.

Health care, financials, and value stocks are among the areas we see as long-term beneficiaries if AI proves transformative. And if AI disappoints, they may offer greater resilience if AI-related expectations ultimately prove too optimistic.

For advisors, our view isn't about abandoning the stocks that have lifted client portfolios to record highs over the past few years; it's about where the next incremental dollar should go. So if you are trying to emphasize our AI view in client portfolios, consider directing new money towards value stocks using a factor ETF like Vanguard U.S. Value Factor ETF (VFVA), or even targeting some of the most promising sectors using AI with Vanguard Health Care ETF (VHT) and Vanguard Financials ETF (VFH).

Watching the horizon

Today's market is focused on the builders of AI infrastructure. History suggests that some of the largest beneficiaries may be the companies that learn to use AI most effectively to improve productivity, expand margins, and create new products and services.

For advisors, that creates both an opportunity and a challenge. The future winners may not be the companies dominating headlines today.

By maintaining broad diversification and thoughtfully allocating new dollars toward areas where AI's productivity gains may ultimately emerge, advisors can position clients not only for the current phase of AI, but for the ones that follow.

Like the best surfers, investors don't need to predict exactly where the next wave will form. They simply need to be positioned to catch it when it does.

More Vanguard analysis

For additional expert insights, check out:

• Advisor trends: Find out how your portfolios stack up in comparison with your advisor peers'.
• Market perspectives: Turn to Vanguard's senior economists each month for projected returns and monthly economic highlights on inflation, growth, and expected Fed actions.
• Active Fixed Income Perspectives: View our quarterly, in-depth commentary for a sector-by-sector analysis and a summary of how those views affect the Vanguard active bond funds.

1 Vanguard and Morningstar, Inc., as of June 30, 2026.

2 Vanguard calculations, based on data from FactSet, as of June 30, 2026.

Notes:

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