the broken typewriter

Difference between a good asset and a good investment is the price

Local CFP Brad Brain is back with another installlment of his column, Smart Money. This will be a regular feature in your in-box on Thursday mornings. Happy Reading!

By: Brad Brain

I just had an interesting coincidence. A friend asked me what I thought about Artificial Intelligence stocks, and I told them I was concerned.

A few days later we saw the biggest share price collapse in history.

Nvidia makes the computer chips used in artificial intelligence. Last week they were the biggest company in the world. Bigger than Apple. Bigger than Amazon. Bigger than Microsoft.

This week they lost nearly $600 billion dollars. In one day.

For perspective, imagine if the combined entire market capitalization of the big 5 Canadian banks (Royal Bank, TD Bank, Bank of Montreal, Bank of Nova Scotia, and CIBC) PLUS the combined entire market capitalization of Suncor, Canadian Natural Resources and Tourmaline Oil was erased overnight. That’s how much Nvidia came down. In one day.

Before this, it seemed like almost everyone wanted to jump on the AI bandwagon. Nvidia shares rose 239% in 2023 and then another 171% in 2024. The future looked great.

That is, until a brand-new competitor called DeepSeek came along, offering an open-source solution at a far better price to build and requiring a lot less computational power.

Which brings me to that question I was asked just last week about investing in AI stocks.

Generally speaking, there are two reasons why people will ask me about investments after they have gone up so much, as Nvidia did in 2023 and 2024.

The first reason that people see the rapid increase and they feel like they are missing out. They want in on the action. The problem is, if the share price already has gone up substantially it may be too late.

The second reason is that they are thinking about the future potential.

Regardless which reason it might be, I have the same concern. What is the price that you would have to pay to buy the investment today, and does that price make sense?

Here is the anecdote I told my friend who was interested in buying AI stock:

Let’s say you want to buy the nicest house in Fort St John. It’s beautiful, it’s your dream house, it’s everything you ever wanted.

So, even though the house is perfect for you, would you buy it if the price was $100 million dollars?

Obviously not. It doesn’t matter how nice it is, it doesn’t make sense to spend a hundred million dollars for a house in Fort St John. That price is just way, way, way beyond what you can justify.

And that is my concern with AI stocks. There is no question that artificial intelligence is the future. But that doesn’t automatically mean that AI stocks are a good investment.

The difference between a good asset and a good investment is the price that you pay. Something to keep in mind the next time you are dazzled by some high-flying investment opportunity with great potential.

Price matters.

Brad Brain. CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.