Earnings have given investors something to feel good about.
Full-year S&P 500 profit estimates have been rising, helped by the AI investment boom and stronger-than-expected first-half results. With nearly all companies reporting, 86% exceeded expectations.1
Better profits can support higher stock prices, but strong earnings are not an indication of low risk, especially when so much market leadership and investor attention is tied to one theme: AI.
Over the weekend the only discussion I heard was about the many prominent people in AI publicly suggesting there is more than a 10% chance AI could destroy humanity within the next decade.2 While this may be great marketing, or with growth slowing and competition mounting, it could also be cover for the intensity of the AI money machine rise moderating. But it still exposes an important tension investors should understand.
If AI developers truly believe the technology presents that level of imminent danger, they are in a difficult spot. Regardless of what they say, I do not believe that any major company is going to slow down voluntarily and let a competitor take the lead. Even if U.S. companies stepped back, foreign AI developers could see it as an opportunity to bury the U.S. industry.
There is another question worth asking: if the risk is genuinely that severe, where is the serious public examination of the claim? Congress should be asking what these leaders believe could happen, how it could happen, what safeguards are needed, and why development should continue at its current pace, but we have largely neutered congress from such activity.3
That does not mean AI is uninventable. It means investors should recognize the difference between a powerful long-term technology trend and a portfolio that has become dependent on one story continuing uninterrupted.
What Should Advisors Watch?
Review if clients are overly dependent on a narrow group of companies, one investment theme, or the assumption that AI spending, earnings growth, and valuations will all keep moving in the same direction.
1. Earnings beats tell only part of the story. A company can beat expectations and still decline if investors expected more. Markets respond to the gap between expectations and results, not simply whether a quarterly number was positive.
Strong earnings does not mean low risk.
2. Broad indexes still carry concentrated exposure. Clients may believe they are diversified because they own an index with hundreds of companies. But when a small group of large AI-linked companies drives 50% of S&P earnings growth4, the portfolio experience can be far more concentrated than it appears.
A broad allocation should provide exposure to important trends without requiring one trend to carry the entire plan. That is consistent with Toews’ behavioral-portfolio framing of maintaining broad equity exposure while always maintaining a hedge.
3. The AI story has more than one possible outcome. AI may continue to drive productivity, capital investment, and earnings growth. It may also become more competitive, more commoditized, more regulated, or simply less profitable than today’s valuations imply.
Those are not predictions. They are reminders that a compelling story can still create fragile expectations.
Make concentration visible. Show clients where returns have come from and how much depends on a small group of holdings, sectors, or AI-related themes.
Separate belief from portfolio design. Clients can be optimistic about AI without making it indispensable to their financial future. The goal is not to avoid innovation. It is to avoid building a portfolio that only works if one narrative remains perfect.
Discuss downside management while confidence is high. The best time to discuss risk is before a setback. Hedged equity strategies may help investors remain engaged with equity markets while taking a more deliberate approach to periods when leadership reverses or volatility rises. Helping clients prepare for uncertainty while markets are still climbing may lead to better decision making, rather than speaking about a crisis, while in a crisis.
Strong earnings are welcome. But they do not eliminate concentration risk, valuation risk, or the risk that an AI narrative priced for continued perfection becomes less forgiving.
AI has been massively transformative. That does not mean a client portfolio should be built as if there is only one possible outcome.
Use the next client review to examine where portfolio returns have come from, how much AI-related concentration exists beneath the surface, and whether the portfolio can remain useful if the market narrative changes.
1. https://www.fa-mag.com/news/ai-boom-set-to-push-s-p-500-earnings-growth-to-32–this-year-88402.html
2. https://www.latimes.com/business/story/2026-09-11/is-there-really-10-chance-ai-could-kill-us-all
Bio
Eben Burr is president of Toews Asset Management. He serves as a lecturer and coach of applied behavioral finance for Toews’ Behavioral Investing Institute. He assists in training advisors to implement managed risk strategies and build an educational process for managing investor behavior. He lives in NYC with his wife, son, and lots of guitars. Connect with Eben on LinkedIn
Disclosure:
Toews Asset Management is an SEC registered investment adviser with its principal place of business in the State of New Jersey.
This may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.
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