Video: AI is an Investment Opportunity, Not an Economic Catastrophe
In our view, an overly bearish stance on the economy and equity markets risks underappreciating the gains that have historically accompanied periods of rapid technological change.
Brad Neuman: In our view, AI is following the historical pattern of major technological transitions, in which investment and capital formation lead economic change. We believe this dynamic is now clearly visible in the data. Last year, real business investment grew nearly twice as fast as overall GDP, while technology related business spending grew roughly ten times faster, reinforcing the investment led nature of the current cycle.
We expect this trend to continue as AI disrupts certain industries with some segments of the economy becoming materially diminished, creating real economic pain for those affected. This dynamic will drive more value accrual to capital than to labor in the short-to-medium term, in our view. As a result, we believe portfolios should be positioned to capture business investment broadly, and AI infrastructure in particular, as the core enabler of this transition.
Over the long term, however, we believe the U.S. economy will once again demonstrate its dynamism, reabsorbing labor, sustaining income growth, and ultimately supporting continued expansion in consumption and overall economic prosperity.
Renowned economist Joseph Schumpeter described capitalism as a process of creative destruction: the continual dismantling of old economic structures and their replacement with new ones. Major innovation, in this framework, is not additive at the margin, but disruptive by design. It destroys specific firms, industries, and professions even as it expands total productive capacity and long-term wealth.
At the turn of the 20th century, roughly 40% of the American workforce was employed in agriculture. However, the advent of mechanization such as tractors and combines allowed a small fraction of that labor force to produce far more than the entire sector had previously. Now, if one had projected forward from that moment, the fear of mass, permanent unemployment would have seemed entirely rational. Where would tens of millions of displaced workers go?
The flaw in that question is that it assumes the future labor market must be visible from the present. It wasn’t. Displaced agricultural workers did not move into roles that already existed. They became factory workers, railroad laborers, miners and machinists, and ultimately moved to new industries such as logistics, aviation, computing and software.
We believe this is the core insight of creative destruction: value and labor do not vanish when productivity rises, rather they are reallocated.
In our view, an overly bearish stance on the economy and equity markets risks underappreciating the gains that have historically accompanied periods of rapid technological change.
For more than six decades, Alger has used deep, fundamental research to identify the innovators reshaping industries — from the PC to the internet to smartphones — and owned them through periods of transformative change. As AI redraws the competitive landscape, we believe that disciplined, research-driven selection will be more important than ever.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of March 2026. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.
Companies involved in, or exposed to, AI-related businesses may have limited product lines, markets, financial resources or personnel as they face intense competition and potentially rapid product obsolescence, and many depend significantly on retaining and growing their consumer base. These companies may be substantially exposed to the market and business risks of other industries or sectors and may be adversely affected by negative developments impacting those companies, industries or sectors, as well as by loss or impairment of intellectual property rights or misappropriation of their technology. Companies that utilize AI could face reputational harm, competitive harm, and legal liability, and/or an adverse effect on business operations as content, analyses, or recommendations that AI applications produce may be deficient, inaccurate, biased, misleading or incomplete, may lead to errors, and may be used in negligent or criminal ways. AI companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology. Investing in innovation is not without risk and there is no guarantee that investments in research and development will result in a company gaining market share or achieving enhanced revenue. Companies exploring new technologies may face regulatory, political or legal challenges that may adversely impact their competitive positioning and financial prospects. Developing technologies to displace older technologies or create new markets may not in fact do so, and there may be sector-specific risks. There will be winners and losers that emerge, and investors need to conduct a significant amount of due diligence on individual companies to assess these risks and opportunities.
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