When artificial intelligence first captured the imagination of investors, a reflexive fear took hold: that AI would gut the business models of established technology companies, turning incumbents into casualties of their own industry's disruption. That fear drove sharp declines in cybersecurity and software names just a few months ago. But the thesis was backwards. The companies most deeply embedded in the AI buildout are emerging as its beneficiaries, not its victims—and as AI becomes more woven into the economy, that advantage only compounds.
Cybersecurity as an AI Beneficiary
Consider the two bellwethers of enterprise security, Palo Alto Networks and CrowdStrike. The original market narrative held that AI would erode their relevance, and the stocks sold off accordingly. The reality has been the opposite: both have since ramped up sharply. As AI gets more embedded into how businesses operate, the demand for securing that infrastructure grows in lockstep. AI is helping both the top line and the bottom line of these firms, and the trend is set to accelerate rather than fade.
The question of valuation inevitably arises, because no one enjoys paying high multiples. But valuation only becomes a genuine problem when it is paired with a fundamental breakdown—and there is no breakdown here. If anything, the fundamentals are accelerating. When the underlying business remains strong, the stock will follow the fundamentals over time. These companies operate with margins in the range of 76 to 78 percent, and they can plausibly grow into their earnings. High valuations are tolerable when the story beneath them is sound.
The 1999 Comparison—and Why This Time Differs
It is natural to look back to 1999 for guidance, because history may not repeat itself, but it does rhyme. Understanding markets requires understanding their past. Yet the comparison cuts in favor of today's leaders, not against them. The Magnificent Seven and the largest AI-exposed names—Nvidia, Microsoft, Google, Amazon—trade at forward multiples well below where comparable companies sat in 1999. Back then, euphoria inflated the prices of "zombie" companies that had little more than an internet-related label attached to them. Those firms rose on narrative alone.
Today's situation is fundamentally different. The leading companies are sound across nearly every dimension that matters: top-line growth, bottom-line strength, and free cash flow. Much of that cash flow is now being directed toward building out capacity, which is necessary given the tremendous demand coming from consumers. We are in the early innings of the AI revolution, and as long as that holds true, these companies should continue to perform.
None of this means the path is smooth. Nothing goes straight up and to the right, however much we might wish it would. Pullbacks, back-and-fill consolidations, and even bear markets are part of the game. Between 1995 and 1999, markets endured roughly fifteen corrections—yet the Nasdaq still tripled over that span. Volatility is not a contradiction of a bull thesis; it is a feature of investing through one.
A Correction on the Horizon
In the near term, conditions look stretched. Markets are overbought on the upside, with numerous short-term indicators flashing that the move has run too far, too fast. On top of that, leadership changes at the Federal Reserve introduce a fresh source of disruption. Kevin Warsh, whom I expect to be a phenomenal figure in the role, is also someone poised to shake up entrenched assumptions. The bond market in particular will need time to adjust to his approach—his different way of looking at inflation, the gauges he intends to use, and his focus on shrinking the balance sheet. All of that is disruptive by design, and disruption breeds volatility.
The likely result is a drawdown of roughly 10 to 15 percent in the S&P 500 somewhere between now and year-end, even as the market finishes higher on the year. A correction of that magnitude should be read not as a reason to flee but as a buying opportunity. The peak of war-driven volatility may already be behind us, but the broader choppiness is not yet finished.
Microsoft: The Operating System for Enterprise AI
Microsoft fell into the same trap as other software companies, punished by the fear that AI would disrupt it. That fear misreads the company's position. Microsoft is habitually late to roll out new capabilities, but that lateness is a deliberate function of security discipline, not weakness. More importantly, 95 percent of Fortune 500 companies already run Microsoft services, which means their data—and the relationships and structure within that data—already lives inside Microsoft's ecosystem.
The company's ambition is to be the AI operating system for the coming wave of agents, with those agents sitting on top of all that enterprise data. Copilot is the vehicle for that vision, and it is already gaining traction quarter over quarter, with tremendous profit margins attached. Notably, Copilot draws on both Claude and OpenAI models under the hood, reflecting a pragmatic, best-tool approach. Microsoft is becoming the backbone of enterprise AI, and that should increasingly show up in the numbers.
Uber: Owning the Network in an Autonomous World
A similar pattern of misplaced fear surrounds Uber. The worry is that autonomous vehicles will displace it—an understandable concern, and an echo of the moment when ChatGPT's late-2022 debut convinced many that search was finished. Google, of course, went on to crush expectations and saw its stock climb substantially, precisely because it turned out to be one of the biggest beneficiaries of AI rather than a casualty.
Uber occupies the same kind of position. Roughly 200 million people use its software every month, giving it a network that is extraordinarily hard to replicate. Rather than resisting autonomy, the company is making the right investments in AV, forging partnerships with Nvidia and a range of car manufacturers to build out the fleet. Led by one of the strongest CEOs in the business, with a powerful brand and product, Uber is positioned to be a beneficiary of autonomous driving rather than its victim. The stock trades at a cheap valuation, and its free cash flow margins are growing rather than declining. It is a compelling long-term story—provided investors are willing to be patient.
The Discipline Beneath the Optimism
There are always risks when capital is at work; that never changes. What separates durable conviction from speculation is attention to fundamentals—something too many investors neglect. Alongside the names above sits Joby Aviation, another bet on a future that is still taking shape. The common thread across all of them is that the AI era rewards companies with real businesses, real cash flows, and entrenched networks far more than it rewards labels and hype. The revolution is early, the leaders are sound, and the inevitable corrections along the way are best understood as invitations rather than warnings.