AI Is Smart. Common Sense Is Smarter.

Artificial Intelligence is everywhere, dominating headlines, driving markets, and fueling predictions about how it will transform our future. Maybe some of that excitement is justified. AI has the potential to be one of the most important technological advances of our lifetime. But after nearly 50 years in the market, I’ve learned a thing or two. For instance, technology changes much faster than human nature. Every generation believes it’s witnessing something completely different, causing many investors to make the same mistake.

Since entering this business, there have been many innovations that have changed the world: personal computers, the Internet, dot-com companies, smartphones, social media platforms, cryptocurrencies. Now, it’s AI. The mistake wasn’t believing in technology, it was believing that great technology is justified at any price. That’s where common sense matters.

People ask whether AI has permanently changed investing. I don’t think it has. While it may change many businesses, investing has always been about separating a great business from a great investment.

As of August 2026, the market isn’t especially expensive, with the Dow sitting about 54,000 and trading at roughly 22 times earnings, close to its long-term average and well below the nearly 30 times earnings we saw during the dot-com boom. My concern isn’t the overall market. It’s the belief that AI has changed the rules. It has not. Here is what drives long-term value.  Many AI firms are remarkable companies, and they deserve premium valuations. But history teaches us that eventually investors stop paying for excitement and start paying for earnings. It’s simply how markets have always worked.

One thing that has changed is how quickly markets move. AI didn’t introduce computers to Wall Street. Algorithmic trading has influenced markets for years. Once automated buy or sell programs get moving, they often reinforce the trend. That’s one reason corrections happen faster today than they once did. Could those programs help push the Dow back toward 40,000 someday? Absolutely. If that happened, I wouldn’t view it as a reason to panic. I’d view it as something markets have always done.

Since 2010, we’ve lived through two dozen pullbacks (5-10% decline), a dozen corrections (10-20% decline), and two bear markets (decline of 20% or more). While each one felt significant at the time, looking back, every one of them became part of a much longer upward trend. Corrections aren’t pleasant. They’re normal.  In fact, if the market were to decline to 40,000, valuations would fall to roughly 17 times earnings—a level much closer to long-term historical averages than where we are today.

That wouldn’t necessarily represent bad news. For patient, long-term investors, it might represent opportunity, as wealth is built through ownership, dividends, compounding, and time. Building long-term wealth has never been as exciting as the latest technology or the latest app. But it’s been remarkably effective. It’s common sense.

AI will change industries. It will create enormous opportunities. It will also create winners and losers. It won’t change the principles that have guided successful investors for generations. Valuations matter. Patience matters. Discipline matters. That’s why I still believe the most valuable investment tool isn’t artificial intelligence.

Because after nearly five decades of bull markets, bear markets, bubbles, crashes, and recoveries, I’ve found that while technology never stops changing...

Human nature rarely does.

Neil Hennessy
Chairman, Chief Market Strategist
Hennessy Advisors, Inc.