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

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

The 2025 Australian Federal election – implications for investors

With an election due by 17 May, we are effectively in campaign mode with the Government announcing numerous spending promises since January and the Coalition often matching them. Here's what the election means for investors.

Latest Updates

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Economy

Australia's economic report card heading into the polls

Our economy grew by a nominal rate of 7% per annum from 2017 to 2024, but it benefited from the largesse of fiscal and monetary policies, both of which are now fading. We need a new, credible economic growth agenda.

Preference votes matter

If the recent polls are anything to go by, we are headed for a hung parliament at the upcoming federal election. So more than ever, Australians need to give serious consideration to their preference votes.

SMSF strategies

Meg on SMSFs: Tips for the last member standing

It’s common for people as they age to seek more help in running their SMSF if their capacity declines. An alternate director may be a great solution for someone just planning for short-term help in the meantime.

Wilson Asset Management on markets and its new income fund

In this interview, Matthew Haupt from Wilson Asset Management discusses his outloook for the ASX, sectors such as REITs that he likes, and his firm's launch of a new income-oriented listed investment company.  

Planning

‘Life expectancy’ – and why I don’t like the expression

Life expectancy isn't just a number - it's a concept that changes with survival rates over time. This article breaks down how age, survival, and societal factors shape our understanding of life expectancy, especially post-Covid. 

The shine is back on gold, and gold miners

Gold mining stocks outperformed in 2024 and are expected to do well in 2025. At this point in the rally, it's worth considering what has driven gold prices higher and why miners could still have some catching up to do.

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.