If you’re a young investor, you shouldn’t be afraid to take opportunistic risks that you can understand. Undoubtedly, the growth trade is getting pretty crowded these days, especially in the tech sector, as the so-called AI boom continues to play out. But is the glorious rise of the revolutionary AI innovators anything more than a bubble?
It’s hard to say right now. I’d say we’re more in the middle ground between euphoria and cautiousness (and nervousness, as we found out last week!). For the most part, valuations do seem mildly frothy, even after the latest November slide in the names. Though, this could change as the next round of earnings numbers come out. And though valuations seem, more or less, in a better spot today than when we entered the month, investors with a high ability to take risk shouldn’t recklessly jump into stocks that are either difficult to value or are technically overbought.
Undoubtedly, chasing momentum could really sting once it works against a stock. And they tend to turn without any sort of warning sign. Either way, young investors should only take risks with the growth plays on their radar that are undervalued relative to their longer-term growth potential. Also, a young investor should commit to staying invested over such a lengthy time horizon.
Young investors should invest in growth, but shouldn’t chase momentum or buy what they don’t understand
As always, ensure you buy what you know so you won’t be left wondering what to do after a position dives by double-digit percentage points. If you relish such a dip so that you can buy more, only then should you punch your ticket to a heated AI name. Because, like it or not, the AI names are going to be vulnerable to more extended plunges.
The key is understanding what you own so that you can make the best move amid a market-wide overreaction, which might squeeze out the new investors who tend to be easily startled at the first signs of volatility. It’s all too easy to catastrophize and think that the historically worst sell-offs or crashes are on the horizon when markets are down by 2% in a day, even when the data does not point to such extremes. Sometimes, you’ll follow the herd without noticing!
Why young Canadians might want to give Microsoft a look
When the market corrects, new investors should look to the steady blue chips that have strong enough balance sheets to weather all sorts of storms, including a bursting of a bubble in AI.
Think shares of Microsoft (NASDAQ:MSFT), an incredibly well-managed (especially under top boss Satya Nadella) company that will be fine, even if OpenAI were to have trouble paying back some of its debts in the future. In any case, whenever shares of MSFT enter a correction, I think it’s time to buy with both hands.
Undoubtedly, Copilot, Microsoft’s AI offering, may have run over a few road bumps in 2025, but I wouldn’t bet against it, especially as the enterprise software behemoth looks to keep up with its Magnificent Seven rivals, who also happen to be fantastic bets on weakness, as the AI-driven bull run defies the bears and bubble watchers.
Even if a bubble were to pop, Microsoft has a robust balance sheet, robust cash flows, and enough growth levers to pull to stay well ahead of the competition. The king of enterprise software has a wide moat, and it’s not to be discounted when shares fall out of favour!
