AI Potentially Powers US Equity Markets Forward (Excerpted from Beatrice Buttress Volume 1, Issue 6 (July 2025)

As discussed previously[1], with world-changing technologies, the winners, historically, are not the pioneers, but users. The best investments were often not the obvious first-order ones but rather the second-order. In the short term, the market often bids up the enablers of new technologies, but over the long term, the companies that effectively use these technologies create the most enduring value.

Corporate Mentions Turn into Action, Use, Margin Expansion

In an insightful research report from Morgan Stanley[2], they note that if you had anticipated that automobiles would redefine transportation in the 20th century and invested in a basket of US automobile manufacturers in 1920, you would have experienced extreme competition, massive consolidation, and subpar equity returns. By contrast, if you had recognized the second-order effect that automobiles would enable suburbanization, you might have anticipated the rise of the big-box retail industry. An investment in Walmart in 1980 – one decade after its initial public offering (IPO) - would have returned over 1,600x its value by 2020. This is roughly 70x the return of holding Ford, the automobile manufacturer, over the same period.[3] Similarly, if you had foreseen that Wi-Fi would become a global standard and invested in Wi-Fi router manufacturers, you would have realized relatively poor shareholder returns as the product became commoditized. On the other hand, recognizing that the streaming video industry was a second-order effect and investing in Netflix at its IPO in 2002 would have returned over 500x your initial investment. That is more than 100x better than the returns of Cisco, a networking and wireless solutions manufacturer, over that same period.[4]

AI is the emergent technology of our time. Investors have gravitated toward the first-order beneficiaries - the manufacturers of graphics processing units (GPUs), which are a dominant enabler for training large language models (LLMs). LLMs are machine learning models designed for natural language processing tasks. Over time, they may become multimodal, capable of both processing and generating images, audio, and video.

The long-term outcome for chip manufacturers remains uncertain, but the history of other disruptive technologies suggests that capitalism ensures early advantages are eventually competed away. And there’s pretty unanimous conviction in one second-order effect of AI: significant productivity gains in both blue- and white-collar labor. This augurs well for all adopters of AI to drive efficiencies and margin expansion. A downside, of course, is the impact on employment and future consumption consequently. AI adoption and use, its impact on margins may be a tailwind for many companies and the margin and EPS impacts may drive equity markets outperformance (beyond the MAG 7).

Beatrice Advisors is a Multi-Family Office delivering high-quality financial services and exceptional value to a new generation of wealthy families and individuals. This article is excerpted from Beatrice Buttress Volume 1, Issue 6. Our Beatrice Buttress writings are a monthly series, a late-month take on the macroeconomic and other events of the past four weeks, necessary for us to analyze to understand the ramifications for the markets that we invest in for our partner-clients, and implications for portfolios.

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Statements of opinion contained herein constitute only current opinions of Beatrice and are subject to change without notice. This document should not be construed as research or investment advice. The information included herein may not be current and Beatrice has no obligation to provide any updates or changes. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein.

[1] Beatrice Buttress, Volume 1, Issue 4,

[2] AI Beneficiaries: Investing in the Second Order Effects, Morgan Stanley Investment Research, April 2025

[3] FactSet

[4] IBID