AI, Geopolitics, and the Case for Diversification
CRAIG LOKEN, ASSOCIATE PORTFOLIO MANAGER
If you’ve ever watched a weather forecast light up with storm warnings, you know technology can be incredibly useful. It can show you what’s coming, track where it may go, and help you prepare.
What it can’t do is stop the storm and that feels like a good way to think about AI right now.
Artificial intelligence is improving fast. It can sort through enormous amounts of information, connect dots quickly, and increase productivity, including in parts of the economy. Those are real advances, and they deserve the attention they’re getting but the real world should still get a vote.
Recent events in the Middle East have been a reminder of that. When conflict threatens a major route like the Strait of Hormuz, the problem is not something software can simply smooth over. It becomes about ships, fuel, insurance, infrastructure, political decisions, and human lives. Before any of that becomes a market story, it is first a human one. But for investors, it is also a reminder that the global economy (and AI) still depends on physical systems that can be disrupted in very real ways.
That is one reason recent AI research has been so interesting. The most useful takeaway is not singular. It is the broader point that even the most powerful digital tools depend on the physical world. Data may move instantly. Electricity, transmission, materials, labor, and construction timelines do not always follow that same pattern. Intelligence is abundant. The real-world inputs needed to support it still move at a real-world pace. That does not make AI less important. It just puts it in context. And that context matters for investment portfolios.
An investment portfolio built around one big idea can feel smart for a while. But markets are not driven by only one force at a time. Innovation matters. Energy prices, inflation, supply chains, interest rates, and geopolitics also factor into the markets. The world has a way of interrupting even the strongest narrative.
That is why diversification still matters.
Not because it sounds cautious. Not because it lacks conviction. But because it recognizes reality. We can appreciate the long-term potential of AI without pretending it removes every other risk. We can invest in innovation without building a portfolio that solely depends on it and on one narrative going exactly right.
AI will continue to reshape itself a great deal in the years ahead. It is a tool to help us operate in the real world. In a world with AI, balance is not a compromise. It is discipline.