Earlier this week, I was asked about rising geopolitical tensions between the U.S. and Iran, particularly around Iran’s nuclear program and what that could mean for markets.

From a portfolio perspective, if I were to rank my concerns on a scale of 1 to 10, this would likely be around a 4. That’s not because it isn’t serious, but because history shows that markets tend to absorb geopolitical shocks relatively quickly unless they materially disrupt economic activity. We’ve seen similar situations (Venezuela and then Greenland) just this year where tensions escalate, markets react briefly and then move forward once uncertainty begins to clear. While escalation is always a possibility, it is not currently a primary driver of our portfolio positioning.

That said, geopolitical tensions do have real effects in certain sectors. For example, a few weeks ago we began increasing exposure to the energy sector, and energy prices have since moved higher, partly driven by renewed geopolitical uncertainty, including tensions involving Iran. This has contributed positively to portfolio performance and reflects our ongoing effort to position portfolios in areas where risk and opportunity are asymmetrically favorable.

The more important issue, in my view, is the ongoing AI-driven transformation of the economy.

There are two competing narratives right now. First, there is concern that AI could disrupt many software companies, particularly SaaS businesses that charge premium subscription fees. Second, markets are uneasy about the enormous amount of capital being spent to build AI infrastructure. Companies like Microsoft, Amazon, Meta, and others are investing aggressively, which has raised fears of overinvestment—similar to what occurred during the railroad expansion and the dot-com era, when infrastructure was built far ahead of demand.

However, there are important differences today. There is a global strategic race between the U.S. and China to lead in AI, and government tax incentives are encouraging companies to accelerate capital spending now.

A helpful analogy would be electric vehicle subsidies. If you were already considering buying an EV and the government announced a 30% subsidy available for the next year, many people would accelerate their purchase to take advantage of that incentive. That would create a surge in spending in the short term, but it wouldn’t necessarily mean that the same elevated level of spending would continue indefinitely. The incentive simply pulls forward future demand into the present. The same dynamic is happening with AI infrastructure—tax incentives and strategic priorities are accelerating investment now. Taxes matter, and incentives matter.

From a portfolio perspective, this uncertainty led me to make some adjustments.

I reduced exposure to a NASDAQ-focused position in the Diversifier Pool and reallocated part of those proceeds into an equal-weight S&P 500 strategy with an income overlay. The rationale is that while AI will create enormous long-term value, it is difficult in the near term to predict which specific technology companies will emerge as winners. Meanwhile, many traditional industries—industrial companies, commodities, materials, and other non-tech sectors—stand to benefit significantly from the productivity gains and infrastructure buildout driven by AI. In many cases, the early beneficiaries of AI may be the users of the technology, not just the creators.

At the same time, periods of uncertainty often create selective opportunities in areas that have fallen deeply out of favor. For example, we modestly increased our position in Coinbase. This was not a large allocation, but rather a measured addition where we believe there may be a disconnect between current market sentiment and long-term fundamentals. Our approach in these situations is disciplined and incremental, allowing us to take advantage of volatility while managing overall portfolio risk.

AI has arrived but most are ill-prepared

This perspective was reinforced by a widely discussed article published last weekend by AI developer Matt Shumer. His core message is that most people underestimate how quickly AI will transform the economy. He compares the current moment to early 2020, when we first began hearing about COVID in Asia and Europe. At the time, most people didn’t fully appreciate what was coming. It wasn’t until the NHL shut down and news emerged that Tom Hanks had been affected that the true magnitude of the situation began to sink in.

His argument is that we are at a similar moment now with AI. The changes are already underway, particularly within the technology sector, but the broader impact has not yet fully registered across the economy. His message isn’t one of fear, but of preparation—understanding what’s coming and positioning accordingly.  The target audience of his article for his friends and family who are not involved in tech or AI development—it is an excellent read which can be found here. 

This is also one of the reasons we are hosting our “AI for Everyone” seminar this Thursday. We still have a few spots available, and I highly encourage you to attend and bring your questions. You are also welcome to invite friends or family.

This seminar is purely educational and not related to Foundation Wealth from a sales perspective. We are offering it because we believe AI will be one of the most important economic shifts of the coming decade, and we want our clients to be informed, prepared, and able to ask questions directly to experts in the field.  If you haven’t RSVP’d but would like to attend, please e-mail lisa.milan@foundationwealth.ca