Some Bubbles Pop and Some Float

As you find yourself in conversations at gatherings this time of year, are you prepared to make your encounters count in light of the biggest market meme of the day— AI and its market implications?

A well-crafted ism or thesis might make all the difference when one proclaims, “I think we’re in an AI bubble. You’re a financial advisor, what are you telling your clients right now?”

To help with this, we turn to Thomas Kamei, Investor at Counterpoint Global. Below are excerpts from our conversation.

David Richman:
Thomas, do you have an ism that might apply to this omnipresent AI conversation?

Thomas Kamei:
“Some bubbles pop and some float.”

David Richman:
Wow, I love that, especially since so many investors are worried about an AI bubble. Can you expand?

Thomas Kamei:
Not every AI investment is created equal. Some areas are clearly speculative— companies with extreme growth expectations, questionable moats, unproven business models, and negative margins. Conversely, others use AI to generate real, sustainable value.

David Richman:
So, how do you distinguish between the two?

Thomas Kamei:
We encourage advisors to look for what we call “second-order effects.”

Consider Wi-Fi in the internet era.  Selling routers quickly commoditized, yet Wi-Fi also enabled video streaming.  If you invested in the Netflix IPO in 2002, your return was 520x by 2020, versus 4x from Cisco, a leading networking company.

In the AI era, most people are similarly focused on first-order impacts—GPU data centers and Large Language Model companies like OpenAI.  Instead, we see significant economic value accruing to “second-order” impacts. These are the businesses integrating AI to boost profitability through workforce efficiency.

Our research shows that automating half of the roles most vulnerable to AI for the top 1000 public companies could unlock $207 billion in labor cost savings, increasing profits up to 16% for the most adaptive companies. The biggest winner won’t necessarily be the AI suppliers, instead, they are likely to be those effectively deploying AI to transform operations and expand margins.

David Richman:
This makes so much sense. Where can investors look for second-order opportunities in today’s markets?

Thomas Kamei:
One area is labor intensive businesses with lots of repeatable tasks like quick service restaurants.  We did an analysis of Shake Shack using our Culture Quant tools, developed with professors from Harvard Business School. By integrating automation, Shake Shack could reduce prep time, raise wages by 33%, lower meal prices, and still expand restaurant-level EBIT margins from 20% to 25%. Rather than displacing staff, Shake Shack could redeploy workers to its growing base of restaurants.  That’s efficiency benefitting employees, not replacing them.

David Richman:
You emphasize innovation internally. How does this AI adaptability credo influence investment strategy at Counterpoint Global?

Thomas Kamei:
We stay focused on thinking differently. An example is our “Golden Swans” framework, where we use AI agents to mimic different investor styles to produce a range of outcome estimates for a business. It’s early days, yet we believe these tools could help us uncover differentiated, under-appreciated opportunities for our sector experts to investigate and avoid getting swept up in consensus thinking.

David Richman:
Any final thought on what you believe is essential for advisors today given the potential magnitude of AI?

Thomas Kamei:
Technology alone doesn’t create lasting value—people and adaptive culture do. Companies excelling in adaptability, retention and reskilling will thrive as AI accelerates.

Therefore, it’s all about second-order thinking. Seek to master this approach in your investment decision-making.

Bottom line:
“Some bubbles pop and some float”—a wonderful ism that checks all the boxes of our four best practices to ism development: timely, pithy, sound bites that connect-the-dots between market memes and the advice you deliver.