INSIGHTS

October 17, 2025

Manager Perspective

AI Investing: Hype or Real Progress?

Artificial Intelligence (AI) can potentially solve many of the world’s most complex problems. We likely haven’t scratched the surface of its potential. Yet with every investment boom comes speculation, misallocation of capital, and asset bubbles. Markets do not move linearly, so we expect them to move ahead of real progress at times. Adjustments and pullbacks are also a natural part of the investment cycle, helping investors reset their expectations. At Tandem Wealth, we closely monitor various volatility and credit measures for signs of excess that could threaten market stability.

C. Angus Schaal, CFP^®

Senior Managing Director

Amy Bush, CFA

Chief Investment Officer

Today’s AI expansion appears more firmly grounded than past speculative cycles. Investment is flowing into tangible assets— an electrical grid upgrade, semiconductors, data centers, and software platforms—that improve productivity across industries. Many companies are already realizing measurable cost savings and efficiency gains from AI adoption, and the earnings of leading firms are growing alongside their valuations. Private capital is going to commercially viable solutions rather than purely experimental ideas.

While media narratives often blur the line between hype and reality, today’s AI developers are building infrastructure supporting future innovation. These initiatives take time to generate profits, much like earlier technological revolutions.

During the dot-com bubble, S&P 500 valuations were far higher and far less supported by earnings strength. In early 2000, the S&P 500 traded around 26–27x forward earnings, while the Nasdaq 100 exceeded 70x. Profit margins were much lower, and many companies had little or no earnings at all.

By contrast, today’s market—at about 22.25x next-twelve-month earnings—is elevated but not extreme relative to history. Today, corporate balance sheets are stronger, margins are near record highs, and the top constituents (Apple, Microsoft, Alphabet, etc.) generate real cash flow and consistent profits.

In short, the dot-com era was driven by speculation and unproven business models, while today’s valuations reflect mature, highly profitable companies with measurable productivity gains from technology and AI investment.

At Tandem, we are also harnessing AI to improve our own processes. Our Handlebar financial planning system integrates AI to model a wide range of potential client outcomes using probabilistic programming, enhancing efficiency and insight in planning and analysis.

We continuously monitor economic trends, market behavior, and policy developments in the US and abroad to evaluate their potential impact. Our investment approach remains disciplined and diversified. Attempting to time the market rarely works—staying invested continues to be the most reliable strategy. The tariff-driven selloff in April was a clear reminder: those who remained on the course quickly recovered as conditions stabilized. We believe AI will reshape many parts of the global economy over time, and our focus remains on capturing that growth responsibly while avoiding areas of excess and speculation.

Disclosures:

Tandem Wealth Advisors LLC (“Tandem”) is an SEC-registered investment adviser.

The information published herein is provided for informational purposes only and does not constitute an offer of investment advisory services. All information is subject to change without notice. Nothing contained herein constitutes financial, legal, tax, or other advice. No investment process is free of risk, and investors may lose all their investments. Past performance is not indicative of current or future performance and is not a guarantee. The opinions expressed in this document may not fit your risk and return preferences. The information provided is obtained from sources believed to be reliable, but we cannot attest to its accuracy. Past performance is not necessarily indicative of future returns.

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