Vol 3, Issue 11. Quarter 2 – 2026.

Turn on the financial media, and every CEO is bragging about their “AI integration” and “agentic workflows,” whatever the hell that means. They are spending hundreds of billions of dollars to implement AI-based tools. But here is the problem with common technology: if everyone has it, then there is no real reason to believe that it will create a competitive advantage for any particular company. It’s not a “moat”; it’s a treadmill.

Wall Street analysts want you to believe that corporate AI adoption is a rocket ship that will increase profits and change asset values for company X in a predictable way. This idea inspired many people to try to “pick the winners,” and “time the market” by buying stock in company X now to get the AI boost today.  This is financial bullshit for several reasons.  

The Solow Paradox 2.0

To understand what’s happening, we need to dust off a n old concept from a Nobel- prize winning economist. Back in 1987, Robert Solow looked at the dawn of the personal computer era, scratched his head, and made a famous observation: “You can see the computer age everywhere but in the productivity statistics.” We saw billions in investment, millions of hours spent on training, altered workflows, changed job descriptions, millions of people fired, and a different million people hired to work the new machines. What we didn’t see was great profit growth as a result.

In 2026, we are living through the Solow Paradox 2.0. Earlier this year, Apollo’s chief economist Torsten Sløk explicitly resurrected Solow’s warning, pointing out the obvious: “AI is everywhere except in the actual profit margins.”

We are currently working through what researchers call the “Installation Phase” of a technological revolution. This is the painful part of the cycle where everyone spends massive amounts of capital to build infrastructure, but the profits it will produce are either fiction or are years away. Yes, companies are pouring billions into silicon chips and cloud contracts, but aggregate U.S. productivity is still stuck. Instead of expanding the bottom line to increase profits or to pay you a larger dividend, this massive tech spend is simply becoming a permanent cost of doing business.

The AI Tax & John Wick

As of March 2026, Morgan Stanley Research reports that “Big Tech” capital expenditure has surged to $740 billion this year alone—a 69% increase over 2025. When a companies spend that kind of money on data centers and silicon, it isn’t an “accounting adjustment.” It is a direct withdrawal from the pool of money that used to go toward buybacks and dividend hikes. Companies are firing junior analysts and customer service reps to save on labor costs. But those savings aren’t raising profits. Instead, they are being immediately captured by the “AI service providers.” This is the AI Tax. If a bank saves $10 million in salary by using an LLM, but has to pay $12 million in cloud compute and licensing fees to stay competitive, the “productivity gain” is actually a net loss of value. You are essentially watching a massive wealth transfer from the S&P 500’s broad base to a handful of chipmakers.

You might ask: “If the ROI is this shaky, why are they spending the money?” Because they have no choice. This is sometimes called the “John Wick effect.” In the movies, when you see a man like John Wick coming, you don’t ask about the “return on investment” of a bulletproof suit; you just buy the suit and pray that it works.

Corporate boards are currently terrified. They aren’t all investing in AI because they have a brilliant plan to increase profits. Many are investing because they are afraid that if they don’t, a competitor will use an AI agent to automate them out of existence by next Tuesday. This is Survival Spending, and survival spending is rarely efficient.

According to BlackRock’s 2026 “Dawn of Dispersion” report, we are seeing a massive split in the market. While a few “monetizers” (like Nvidia) are seeing great results, the vast majority of companies are borrowing heavily to fund this transition. Morgan Stanley notes that AI infrastructure is now the single largest driver of new corporate debt in 2026. This creates a double-whammy for any short term investor.

1. Lower Cash Flow due to higher CapEx.
2. Higher Interest Expense due to the debt taken on to buy the chips.

The result? The connection between AI and corporate profits is a lot more complicated than it may seem. Some firms that are bragging about how AI will increase their profits today will be eliminated by someone who does it better tomorrow. Picking the winners is a lot harder than it looks, and timing the purchase because of the profits that are just around the corner is a fool’s errand.

Here is what is going to happen. Please read this carefully.

I DON’T KNOW

But here is the real secret. Neither do you, and neither does anyone else. Don’t get me wrong – we do know in some sense. There will be a few big winners and a lot of small losers. I am not saying that AI doesn’t matter. I am saying that every manager on planet earth is working to figure out how to use AI to increase profits. Some of those ideas that we haven’t even heard of yet, will work. Most of those ideas won’t. Some ideas will be great for a while, but when everyone else copies them at the same time, profits simply stay the same.

But here is the larger point. As long term thinkers, we do not react to current events. If the effect is easy to see, it is already included in the price of the asset. If it is not included, it is because it’s really hard to see. Combine this with the fact that every talking head on your screen is telling you that he actually knows the future (as they always claim) and you have a classic recipe for chaos, premature decisions, bad bets, and lots of outright fraud.

But here is what I actually do know for sure. When I own a piece of the most successful companies on the planet, some of them will get this right, and when they do, I get my cut because I simply hold them all.

The AI revolution is real, but as an investor, you know that only time will tell how this all plays out.  No matter how it goes, I want to own a piece of the winners, and I do that by owning a piece of all of the players. As long as I do that, my plan will not change with the current fad, no matter how big it might be.