Remember when everyone was obsessed with buying electricity stocks? Yeah, neither do we. But here’s the thing: the companies that actually *made* electricity? They got crushed by the utilities that *used* it. Vanguard’s chief economist Joe Davis is basically saying the same thing is about to happen with AI, and he’s got a roadmap for where smart money should pivot.
The AI infrastructure party—all those chip makers and hyperscalers throwing billions at data centers—has been *insane*. NVIDIA, Broadcom, all the usual suspects have had a field day. But Davis is waving a yellow flag: that gravy train is already priced in. The real wealth, he argues, is about to shift to the companies that actually *use* AI to make money.
Think about it. Electricity didn’t make power companies rich—it made the factories that ran 24/7 rich. Cars didn’t make automakers the wealthiest; they made suburban developers and retailers fat. AI’s going to follow the same playbook. The builders are having their moment. The users are about to have theirs.
So what does that mean for your portfolio? Davis is pointing to three trades that could absolutely crush it over the next 5-10 years: **value-oriented US stocks**, **non-US developed markets**, and **high-quality fixed income**. I know, I know—that sounds boring as hell compared to “buy the hottest chip stock.” But boring is exactly the point.
The real winners will be healthcare providers automating their operations, financial services firms personalizing everything, and business services companies that suddenly become 10x more efficient. These aren’t sexy names. They’re not going to make you feel like a genius at dinner parties. But they’re going to make you money while everyone else is still arguing about whether AI is overvalued.
Here’s the kicker: these trades work *either way*. If AI lives up to the hype and transforms the world? They’ll be the ones capturing all that value. If the AI trade implodes and everyone panics? They’re defensive enough to hold up while growth stocks crater. It’s like having a hedge that also pays dividends.
Davis isn’t saying “dump your tech stocks tomorrow.” He’s saying it’s time to *start* rotating. The point is to recognize that we’re moving from the “AI builders dominate” phase to the “AI users command attention” phase. It’s not about timing the market perfectly—it’s about positioning for what comes next.
If you want exposure without picking individual stocks, Davis highlighted some ETFs: the iShares Core S&P US Value ETF (IUSV) for value plays, the Schwab International Equity ETF (SCHF) for non-US developed markets, and the Vanguard Total Bond Market ETF (BND) for fixed income.
The lesson? The sexiest trade isn’t always the most profitable one. Sometimes the boring stuff—value stocks, international exposure, bonds—is where the real alpha hides. And if Vanguard’s saying it, you might want to listen.
