My #1 Filter for Vetting AI Stocks
Wall Street is cheering for a future where its favorite companies have no customers.
That sounds insane, I know.
But it’s the only logical conclusion of the AI arms race we’re watching unfold.
The pitch is super simple: spend billions on AI, fire armies of employees, and watch profits soar as your single biggest expense — labor — vanishes.
This story fits neatly on a PowerPoint slide for an earnings call, and the market is eating it up.
There's just one problem, a piece of third-grade math that seems to have escaped the notice of an entire generation of Ivy League CEOs.
If people don’t have jobs → they don’t have money → if they don’t have money, they can’t buy your products.
It’s a fatally flawed business model.
And for anyone trying to build a reliable income stream for retirement, understanding this fatal flaw is now the most important job you have.
The Tragedy of the Modern CEO
There’s a concept in economics called the "Tragedy of the Commons."
Imagine a shared pasture where multiple shepherds graze their sheep.
Each shepherd, acting in their own self-interest, adds more and more sheep to maximize their personal gain.
What do we get?
The pasture that is overgrazed and destroyed, and all the sheep starve.
This is the AI arms race in a nutshell.
Every CEO is incentivized to cut labor costs to juice the next quarterly earnings report.
You announce a 10 000-person layoff replaced by an algorithm, and the stock pops.
The analysts cheers "efficiency," and the executive gets his bonus.
In his own little bubble this CEO is acting rationally.
But zoom out, and you see a thousand CEOs making the same "rational" decision, collectively torching the very consumer economy they depend on.
One comment I saw on Reddit put it perfectly: a single raindrop never feels responsible for the flood.
The problem isn’t new, it’s just the accelerated endgame, consume AKA the host for this whole economic experiment has been getting weaker for decades.
Take a look at the gap between productivity and pay:
Since the 1970s, productivity has skyrocketed, but the wages for the typical worker have flatlined.
All those gains from efficiency haven't gone into the pockets of the people who are supposed to buy the goods. They’ve gone to corporate profits, which, not coincidentally, have risen to record highs as a share of the economy, while labor's share has steadily declined.
The system has been siphoning purchasing power from the consumer for two generations and AI is just the plan to hook up the last vein directly to the machine.
The Tool vs. The Replacement: Your New Investment Filter
I didn’t write it as just a philosophical rant.
IMHO It’s the most critical investment screen you can apply for the next decade.
Let’s forget P/E ratios and discounted cash flow models for a moment.
You need to ask two brutally simple questions about any company you own or consider owning:
What does this company’s product actually do?
Is it a TOOL or is it a REPLACEMENT?
Let me break that down.
A Replacement is technology designed to eliminate a human job entirely.
Think self-checkout kiosks, automated call centers, or software that writes basic code. A company that sells Replacements is in the business of destroying its own potential market.
For every dollar of "efficiency" it creates for its client, it helps remove a dollar of wages from the broader economy. It's a cannibalistic model.
A Tool is technology that makes a skilled and valuable human even better at their job. Think of the advanced software from Adobe that allows a graphic designer to create things they couldn't before, or the diagnostic imaging AI that helps a surgeon identify cancer earlier. The Tool doesn't fire the designer or the surgeon; it makes them more productive, more valuable, and capable of earning a higher income.
This is a symbiotic relationship.
It grows the pie.
The company's success is tied to its customers' success.
I am currently working on implementing this "Tool vs. Replacement" filter in my VADER screen.
Any company whose primary business is selling Replacements to mass-market employers is a giant red flag. They are actively contributing to the deflationary spiral that will, eventually, gut their own revenue.
The market has a way of punishing people who get overconfident and ignore systemic risk.
This headlong rush into AI feels exactly the same: the narrative is a sure thing, but the underlying system is cracking.
Bet on Reality, Not the Story
The story Wall Street is selling is "AI-driven efficiency."
It's easy to understand and sounds great on TV.
But we aren't story investors.
We are cash flow investors.
Our entire mission with the "Multiplier Loop" — OWN quality assets, SELL options for income, REINVEST the proceeds — is built on the foundation of durable, predictable cash flow.
And cash flow comes from customers with paychecks.
The great unwinding of this AI fantasy will be volatile and messy.
But the principle is very simple.
Don’t invest in the farmer selling his topsoil.
Invest in the businesses that sell better shovels and stronger seeds.
They're the only ones who will be left standing when the dust settles.
This is a great article, not just for investors. It reflects the concerns I've had about AI since I first heard about it