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

Unearthing small and mid-cap gems

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

When algorithms go rogue the havoc is all too human

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Latest Updates

Investment strategies

Finding income in an income-starved world

With term deposit rates falling, bonds holding up but with risks attached, and stocks yielding comparatively paltry sums, finding decent income is becoming harder. Here’s a guide to the best places to hunt for yield.

Economy

Fearful politicians put finances at risk

A tearful Treasury chief, a backbench rebellion, and crashing bonds. What just happened in the UK and why could Australia’s NDIS be headed for the same brutal fiscal reality?

Shares

Investing at market peaks: The surprising truth

Many investors are hesitant to buy into a market that feels like it’s already climbed too far, too fast. But what does nearly a century of market history suggest about investing at peaks?

Shares

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Investment strategies

Will stablecoins change the way we pay for things?

Stablecoins have been hyped as a gamechanger for the payments industry. But while they could find success in certain niches, a broader upheaval of Visa and Mastercard's payments dominance looks unlikely.

Infrastructure

An investing theme you can bet on for the next 30 years

Investors view infrastructure as a defensive asset class rather than one with compelling growth prospects. These five tailwinds for demand over the coming decades suggest that such a stance could be mistaken.

Investment strategies

A letter to my younger self: investing through today's chaos

We are trading through one of history's most confounding market environments. One day, financial headlines warn of doomsday scenarios. The next, they celebrate a new golden age. How can investors keep a clear head?

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.