Volatility Is Part of Investing in AI
Anyone investing in AI or AI infrastructure stocks has likely noticed how quickly sentiment can change.
Companies like NVIDIA, AMD, Micron, Corning, Applied Materials, GE Vernova, Eaton, and others can rise sharply one week only to give back much of those gains the next. Daily moves of 5% or 6%, in either direction, have become surprisingly common across many AI and AI infrastructure stocks. Headlines, earnings reports, and changes in investor sentiment often produce large daily swings that would have seemed unusual only a few years ago.
We don’t believe that volatility means the investment thesis has changed.
In fact, we’ve consistently argued that we’re still in the early stages of the AI buildout. The companies developing AI models continue investing heavily. These investments include data centers, semiconductors, networking equipment, power infrastructure, fiber-optic cable, and cooling systems. As long as that long-term trend remains intact, short-term price swings become something to manage rather than something to fear.
Those swings aren’t likely to disappear anytime soon. We don’t spend much time trying to predict when volatility will arrive. We spend more time deciding how we’ll respond before it does.
A Disciplined Approach Starts Before the Market Moves
We think there are two ways to manage AI volatility, but they’re designed to work together rather than compete with one another.
The first is the foundation of our approach. Once we’ve built the allocation we want in AI-related stocks, our objective is to remain patient while the long-term investment thesis plays out.
The second approach is used much more selectively. Rather than buying every dip, we identify one or two companies we believe in strongly. We then buy if the price of these stocks hits a predetermined low. Once we’ve done that, we simply return to our original strategy of riding through the volatility.
Strategy One: Build Your Position and Stay Patient
Our default strategy is straightforward.
We establish the level of AI exposure we’re comfortable owning, and avoid making adjustments simply because prices are moving around. That means accepting that 5% or 6% daily swings have become part of investing in many AI-related companies, rather than treating every rise or decline as a signal to act.
That’s easier said than done. Watching quality companies decline can tempt investors to sell too early or buy the dip. Sharp rallies often create the fear of missing out. Neither reaction necessarily reflects a change in the underlying business.
If our long-term outlook for AI and the infrastructure supporting it remains the same, then our portfolio strategy shouldn’t change every time the market has a difficult week.
Over time, some positions will naturally grow into a larger percentage of the portfolio. As that happens, we’ll trim positions to maintain diversification, but that’s very different from reacting emotionally to short-term volatility.
Strategy Two: Pick Your Price Before the Market Gets There
The second strategy begins long before a stock actually declines.
One of the biggest mistakes investors can make is treating every 5% decline as a buying opportunity. Many of these stocks have developed a pattern of falling 5% or 6% in a single day, only to continue moving lower over the following days or weeks. Continually adding to a position every time it drops can quickly leave investors overexposed. If the stock continues falling, that growing position can eventually lead to an emotional panic sale.
Instead of continually buying every dip, we prefer to identify one or two AI-related companies that we have the highest conviction in. Then we decide, in advance, the price at which we’d be excited to own more.
We make this decision before the markets start to move, while we’re thinking rationally rather than reacting emotionally to a falling stock price.
If the market never reaches that level, nothing changes. We simply continue following Strategy One. But if one of those companies reaches the price we’ve already identified, we’ll add to the position because the long-term upside has become even more attractive.
The strategy isn’t buying the dip.
The strategy is buying your dip.
After adding to that position, we don’t continue chasing every additional decline. We simply return to our original strategy of holding through the volatility and allowing the long-term investment thesis to develop. Otherwise, what began as a disciplined purchase can quickly turn into repeatedly buying a stock that’s still searching for a bottom.
Diversification Makes Patience Much Easier
The second strategy only works if it fits within the overall portfolio you’ve already decided to build.
Don’t add more shares if that would push your AI allocation beyond the level you’re comfortable owning. It’s better to continue holding through the volatility rather than forcing another purchase. Strategy Two is designed to enhance your long-term returns through strategic decision making. This does not mean continually increasing your exposure every time the prices move lower.
That’s one of the reasons diversification remains so important.
Even though we’re optimistic about AI, we don’t believe every dollar in a portfolio should be invested in the same theme. Holding positions across multiple sectors makes it much easier to remain patient when AI stocks experience periods of unusually high volatility. Diversification often gives investors the confidence to hold their best long-term ideas because they aren’t relying on one sector to carry the entire portfolio.
Long-Term Conviction Requires a Long-Term Process
Every major investment theme experiences periods when optimism fades and volatility increases. Artificial intelligence is unlikely to be any different.
For investors who believe the AI buildout has years of growth ahead, those periods shouldn’t force a completely different investment strategy. They simply require discipline.
Sometimes the right decision is to do nothing and allow your positions to recover over time. Other times, the market creates an opportunity to add to one or two companies you’ve already identified as long-term winners.
The key is that you make your decision, before markets move and emotion enters the picture, and stick to your strategy.
That’s the approach we continue to use as we invest in both AI companies and the businesses building the infrastructure that makes artificial intelligence possible.
Stay Focused on the Long-Term Opportunity
Volatility is inevitable. Emotional decision-making doesn’t have to be.
At Michael Leslie Investments, we help investors build disciplined portfolios designed to stay focused on long-term opportunities while avoiding short-term reactions that can undermine returns in the long run.
Contact Michael Leslie Investments today to learn more about our approach to AI investing, portfolio construction, and long-term wealth building.
