Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 526

Every era has its hot stocks. Will AI defy gravity?

In the world of finance, few phrases are potentially as wealth destructive as 'this time it’s different'. Yet, during a period when the mere mention of artificial intelligence (AI) has sent valuations soaring, many are wondering if this time it really is different.

AI is undoubtedly a game-changer, impacting virtually every industry. History is filled with such transformative moments – and every era has its hot stocks. Before AI, it was the Internet. Prior to that, the world was bracing for Japan’s economic dominance – until it wasn’t. Conglomerates and oil companies, the “Nifty Fifty” of the 1970s have all had their moment in the sun.

So, is the euphoria around AI justified? Or should investors be bracing for an inevitable downfall? There are reasons to believe that this time might indeed be different. In the new AI economy, scale matters. Companies such as Nvidia, which is providing the proverbial picks and shovels for this new gold rush and which recently announced its sales would jump 170% this quarter, underscore this trend.

What history has to say

Yet, questions remain: is there room for the next college roommates with a disruptive big idea? Is the next Microsoft waiting in the wings? To gain perspective on these questions, we dived deep into the history of the US stock market, looking at the top 100 stocks (by market cap weight) at the end of every decade from the 1960s through to the 2010s and examining where the leaders of each decade were 10 years on (see Figure 1). While the end of a decade may seem like an arbitrary cutoff point, we chose to separate time accordingly.

Figure 1. Leaders from Each Era Had a Smaller Market Weight a Decade Later

Source: Man Numeric. Data covers period from 30 September 1962 to 31 December 2022. For 2010, ‘end of next decade’ covers period from 1 January 2010 through to 31 December 2022.

What we found most striking is just how strong gravity has typically been. Reaching the top 100 in any decade has been no guarantee of success in the next. In each of the five full decades we studied, the weight of the top 100 stocks at the end of one decade was materially lower in the next. The decade following the dot-com craze of the 1990s (the 2000s) witnessed the lowest survival rate in our study with only 73% of stocks remaining a decade later (see Figure 2).

Figure 2. Survival Rate of Leaders a Decade Later

Source: Man Numeric. Data covers period from 30 September 1962 to 31 December 2022. For 2010, ‘a decade later’ covers period from 1 January 2010 through to 31 December 2022.

Over a full market cycle, new leaders typically emerge, with some exceptions, notably being in the 2010s, as recent market leaders have become somewhat entrenched. With that said, while it’s true that Microsoft did in fact largely become the “General Motors of the Internet” and is still going strong, it has largely proved to be the exception, rather than the rule, at the individual stock level.

Current breed has proven resilient

While acknowledging that the current decade is still young, the leaders from the end of the last decade (2019) have also shown remarkable resilience thus far with the sum of the top 100 weights remaining steady at about 54%.

Returning to our initial question then: is this time different? Perhaps. But history tells us that even in the throes of excitement over new technology and its potential, asset prices may creep ever higher in the short term, but often disappoint in the longer term in the face of elevated expectations. The rise of AI is a thrilling new chapter in the ongoing saga of market disruption, but as investors navigate this new terrain, they would do well to remember the tales of past market heroes and their eventual fates.

 

Michael Dowd is Head of Investment Risk, Man Numeric. Man Group is a specialist investment manager partner of GSFM Funds Management, a sponsor of Firstlinks. GSFM represents Man AHL and Man GLG in Australia. The information included in this article is provided for informational purposes only. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions.

For more articles and papers from GSFM and partners, click here.

 

RELATED ARTICLES

Simple maths says the AI investment boom ends badly

Unearthing small and mid-cap gems

A 30-minute article using OpenAI … and there goes my job

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.