Meridian Blog

As a quick note, the recent escalation of conflict involving Iran is a sobering reminder that markets do not exist in a vacuum. More importantly, events like these carry real human consequences, and we hope that tensions can de-escalate quickly.

From a market perspective, Sarah Irving covered the historical patterns from geopolitical shocks in her blog last week (you can read it here). As she noted, we’ve seen the initial market reaction of a classic “risk-off” decline. Now, with the energy infrastructure under attack and the Strait of Hormuz closed, commodities—particularly oil and gold—have risen sharply, reflecting concerns about potential energy supply disruptions, which have caused the markets to accelerate their decline.

Armed conflicts are first and foremost human tragedies, and they are inherently difficult to predict. That said, history shows that many geopolitical conflicts similar to the current situation in Iran have ultimately not produced lasting damage to the global economy as markets refocus on the economic fundamentals. That doesn’t mean the uncertainty disappears quickly, but it does remind us why maintaining a long-term perspective matters.

Like many of you, we are hoping for peace in the Middle East. The human cost of these conflicts is profound, and our hearts are broken for those innocent people affected and the service members who are risking—and in some cases have lost—their lives. As events unfold, we will continue watching developments carefully and evaluating what they may mean for the global economy and financial markets.

I just wanted to acknowledge that backdrop before sharing a few insights from a conference that I recently attended that focused on another powerful force shaping markets today: artificial intelligence.

A Value Investor’s Framework for AI

Last week, my partner Nathan and I attended FutureProof Citywide in Miami, a conference that brought together advisors, investors, and technology leaders to discuss how AI is transforming industries.

One theme came up repeatedly: AI may not replace advisors—if we can use it wisely, it may actually make us more human. By automating routine tasks, AI can free advisors to spend more time on what matters most: relationships, judgment, and helping clients navigate uncertainty.

One of the most interesting sessions featured Chris Davis, a well-known value investor. His framework for thinking about AI investing centered on a concept known as Amara’s Law: We tend to overestimate the impact of new technology in the short run and underestimate it in the long run.

In other words, new technologies often generate enormous excitement early on, but the real economic impact tends to unfold slowly over many years.

Davis suggested thinking about the AI landscape through several categories.

Emerging Winners

These are the companies most directly associated with AI today, including firms like Google and Meta.

But Davis reminded the audience that history rarely unfolds in such a straightforward way. When railroads transformed the economy in the 19th century, the biggest winners were often the businesses that used the railroads, not necessarily the railroads themselves (see the Users category below!)

Enablers

Another category Davis highlighted includes the companies providing the infrastructure that makes AI possible.

These include:

• Semiconductor equipment companies
• Chip manufacturers
• Energy resources, including natural gas and nuclear, needed to power massive data centers

AI requires enormous computing power—and computing power requires both chips and energy. In many ways, these companies represent the “picks and shovels” of the AI buildout.

Users

Perhaps the most interesting category Davis described was companies that use AI to improve their businesses, rather than companies building the technology itself.

Industries he mentioned included:

• Insurance companies
• Banks
• Financial services firms

These businesses sit on enormous amounts of data and operate complex systems—exactly the type of environment where AI could significantly improve efficiency and decision-making.

Protectors

Another category Davis mentioned included companies that may simply continue doing what they’ve always done, examples included firms like Tyson Foods and MGM.

Technology will change many industries, but some human behaviors remain remarkably consistent. People will still eat, travel, and seek entertainment. These types of businesses may not be AI disruptors, but they can provide durability and stability in a rapidly changing world.

The Walking Dead

Finally, Davis warned about companies that are forced to ride declining business models downward because they fail to adapt.

A classic example is Kodak. Ironically, Kodak invented the first digital camera in 1975. Yet the company remained deeply tied to its profitable film business. As digital photography slowly replaced film, Kodak struggled to pivot and ultimately filed for bankruptcy in 2012.

Davis also made the interesting observation that the rise of index investing can sometimes mask these problems for a while, as capital continues flowing automatically into large companies even as their underlying businesses weaken.

A Blackjack Lesson for Investors

Nathan and I have a small tradition when we attend conferences—when available, we enjoy playing a little bit of blackjack (very low stakes for me—I just enjoy the math of the game!!).

So, when Davis ended his talk with a blackjack analogy, it resonated.

In blackjack, if you understand the odds and play with discipline, you can almost even the house odds and even possibly develop a small statistical edge over the house. But even if you have that edge, one thing matters above all else:

You have to survive long enough at the table for the edge to work.

If you make a few oversized bets early and hit a bad streak, you’re out of the game before the math has time to play out.

Davis suggested the same idea applies to investing in major technological trends like AI.

Even if the long-term thesis is correct—and AI ultimately transforms the economy—investors still need to think carefully about position sizing and diversification. Making a few oversized bets on a single theme can leave investors vulnerable if the path turns out to be bumpier than expected.

In other words, the goal isn’t just to be right about the future. The goal is to stay in the game long enough to benefit from it!

FutureProof!