One thing that is notoriously difficult to accurately predict is a stock market meltdown. As the saying goes: “If everyone knew today that the market would crash tomorrow, it would already have crashed today.”
Still, Michael Burry, who was portrayed in the film The Big Short, argues that a massive AI/tech bubble has been created. He says this will inevitably pop, bringing down pureplay AI stocks like Nvidia and Palantir.
In total contrast, Wedbush analyst Dan Ives says there isn’t any bubble. He sees AI as a fourth industrial revolution that’s just getting started!
Who’s right then?
Huge AI spending
At the risk of appearing like a fence-sitter, I can appreciate both points of view. Burry argues that massive spending on AI data centres and energy costs is turning historically asset-light software firms (Google, Microsoft, Meta) into capital-intensive companies.
This threatens to pressure margins over time. If investors lose faith and rotate out of these shares, there could be a lot of pain, as about 25% of the S&P 500’s value is tied to the Magnificent Seven tech firms.
On the other hand, AI seems very likely to further strengthen Big Tech’s competitive advantages. This is because only a small handful of companies on Earth can spend this sort of money on AI infrastructure without going bankrupt.
Meanwhile, Ives notes that AI adoption is happening far faster than any previous technology, but is still early. “This is a 1996 moment, not 1999”, Ives argues, referencing the infamous internet bubble.
Another powerful trend is that governments worldwide are prioritising sovereign AI capabilities, which is fuelling significant infrastructure buildout.
Additionally, robotics and self-driving cars are now real industries, powered by semiconductors (the hardware) and AI software (the brains). These are both in their infancy, making me believe the AI revolution is still in its early innings.
Far more money has been lost by investors preparing for corrections, than has been lost in corrections themselves.
Peter Lynch
ISA diversification is important
As we start 2026, I’m happy with how my Stocks and Shares ISA is positioned. I have selective AI exposure through holdings like Nvidia, Cloudflare, AI-enabled cybersecurity firm CrowdStrike, and Scottish Mortgage Investment Trust.
However, I also own stocks that have nothing to do with AI, including Games Workshop (LSE:GAW). The Warhammer creator said today (13 January) that its senior managers aren’t yet “that excited” about AI!
To be fair, the firm is doing fine without it, as evidenced by a solid set of results for the 26 weeks to 30 November. On a constant currency basis, sales rose 18.4% to £319m, driven largely by the Trade segment (independent retailers), where sales jumped more than 25%.
Pre-tax profit rose 11% to £114.3m, showing how profitable the business is. Shareholder dividends flow generously due to its impressive cash generation.
Nevertheless, the stock dropped 4% today, with Games Workshop warning that US tariffs will cost it about £12m for the full year. And licencing revenue fell 47%, demonstrating lumpiness here. So there are some challenges.
That said, I’m bullish on the company’s intellectual property, especially relating to its tie-up with Amazon to produce streaming content.
Investors considering this top-notch stock should know it’s not cheap. Games Workshop is one I would add to if a wider market meltdown dragged it down.
