Why Investing in Undervalued Stocks Makes Sense Amid the AI Revolution

An old New York saying goes, 'If you don’t like the neighborhood, wait 10 minutes.' This wisdom is surprisingly fitting for today’s fast-changing financial markets, where rapid shifts make it wise to avoid hasty conclusions.

The economic landscape is evolving so quickly that each moment presents a new reality. In an era of sudden policy changes, making reliable long-term forecasts is inherently challenging. Yet, some experts continue to attempt it.

One such expert is Joseph H. Davis, the global chief economist at Vanguard, a leading asset management firm. He recently authored a book titled “Coming Into View: How A.I. and Other Megatrends Will Shape Your Investments.”

Davis adopts a long-term perspective, centered around Vanguard’s proprietary model. This model explores a range of possible futures driven by the interplay between the rise of artificial intelligence and demographic shifts associated with an aging population.

Essentially, Vanguard outlines two primary scenarios for the decade ahead.

“Two distinct paths exist, but only one will come to pass,” Davis explained. He advises investors to maintain a diversified portfolio with an emphasis on undervalued, beaten-down stocks. This approach offers protection regardless of whether AI achieves spectacular success. “You don’t need to take a side or be a market hero,” he emphasized.

For investors focused on broad U.S. index funds, Vanguard’s model forecasts two very different sets of annualized returns between 2026 and 2035.

While these projections are inherently uncertain and should be approached with caution, they represent a thoughtful attempt to navigate an unpredictable economic future.