Investing in Adoption

October 2026 Client Letter

   I was instructed to stay with the shopping cart.

            My wife and I were at Target. She was heading to another aisle to pick up a few things before coming back for me.

            As I waited, I noticed a woman nearby looking at shampoos and conditioners while asking questions into her phone.

            Apparently, I had been watching with enough curiosity that she noticed me.

            She looked over, laughed, and said, “Can you believe it? I’m using AI to help me pick out hair products.”

            I laughed too. But I also remember thinking, this is really happening.

            Artificial intelligence has been the subject of some of the largest investments in energy, industry, and technology I have seen during my 34-year investing career. And here I was standing in Target watching someone use it to buy shampoo.

            Not long after that, I was having dinner at a familiar restaurant. The bartender had recently been to a Tampa Bay Buccaneers game at Raymond James Stadium. I had been there before and knew parking could take some planning, so I asked what he had done.

            He asked AI to figure it out for him.

            I remember thinking, of course. That makes things a lot easier.

            An old problem suddenly had a new solution.

            My wife’s hairdresser recently started using Meta’s AI assistant, Muse. She is using it to clean up her email, schedule client appointments, manage her calendar, and even research a travel-agent discount for an upcoming trip.

            My wife asked whether she could imagine giving up Muse.

            Her answer was an immediate no. It had become too helpful to do without. 

When AI Becomes Sticky

            As an investor, I am interested in how people adopt new products and technologies. But adoption becomes more meaningful when it shows stickiness, when people don’t just try something, but incorporate it into their routines and don’t want to give it up.

            That is what struck me about my wife’s hairdresser. She wasn’t experimenting with AI simply because it was new. She has already incorporated it into the way she runs her business.

            Of course, three conversations don’t tell us how an entire economy will develop. But they made something I have been following for some time feel much more tangible: the growing adoption of artificial intelligence.

            For investors, the question is no longer whether people will use AI. They already are. The more interesting questions are how quickly and how deeply AI becomes embedded in everyday life and business, and whether businesses can turn that adoption into greater productivity and stronger financial results. 

When AI Becomes Part of the Business

            My recent encounters with AI are anecdotal. The broader evidence suggests they are part of something much larger.

            McKinsey’s latest State of AI survey found that nearly nine out of ten organizations report regularly using AI in at least one business function. Fifty-six percent say they are using AI in three or more business functions, up from 51% a year ago.

            In other words, the story is no longer simply about more people or businesses trying AI. What happens after adoption may matter just as much. Businesses are expanding the number of functions in which they use it.

            A business that occasionally uses AI to draft an email is very different from one that begins incorporating it into customer service, research, logistics, or other everyday workflows.

            There’s still room to grow. Gartner recently found that only 22% of organizations surveyed had successfully scaled AI across multiple business units or adopted what it describes as an AI-first approach. While its methodology differs from McKinsey’s, the broader message is useful: AI use has become widespread, while deeper integration across entire organizations is still in its early stages.

            OpenAI recently described part of this evolution with a simple phrase: “from asking to doing.” 

When AI Starts Using AI

            Most of us have become familiar with AI as something we ask a question and receive an answer from. But AI systems are now doing more than that. They are also carrying out tasks. These systems are often referred to as AI agents.

            You might ask an AI chatbot to recommend a restaurant. An AI agent could go a step further by finding one that fits your preferences, making the reservation, and adding it to your calendar. Instead of simply providing information, the AI begins doing some of the work.

            Microsoft’s latest research found that its most advanced AI users are already using agents to carry out multi-step workflows.

            Anthropic, one of the leading AI companies, uses this approach in its research product. A lead AI agent can break a complicated question into pieces and send other agents off to investigate them simultaneously.

            People and businesses are no longer the only sources of AI activity. AI systems themselves are generating additional work for other AI systems. One person asking one question may increasingly set multiple AI agents to work, with those agents calling on still more agents to help complete the task. 

Behind Every Request

            When we ask an AI system a question, the response can feel almost effortless. Type something into a phone or computer, wait a few seconds, and an answer appears.

            Behind the screen, however, a considerable amount of computing takes place.

            AI systems process information in small pieces called tokens. For our purposes, tokens are simply one way of measuring how much work an AI system is doing. The more complicated the task and the more steps involved, the more computing resources may be required.

            Anthropic has reported that agents in its systems typically use about four times as many tokens as a traditional chat interaction. Its more complex multi-agent systems can use about 15 times as many. Those figures will vary considerably depending on the task and the system, but they illustrate an important point: when AI systems begin assigning work to other AI systems, a single request can generate substantially more computing activity than a simple question and answer.

            This brings us back to the AI infrastructure buildout we have been discussing throughout the year: semiconductors, memory, servers, networking, data centers, cooling systems, and the electricity required to run them.

            Much of our focus has been on the supply side of the story: what is being built and the companies supplying it. Increasing AI usage helps explain the demand side.

            Future demand will depend on more than simply how many people use AI. How often they use it, how complicated the work becomes, and how much computing activity each request generates will also matter.

            This is one reason we continue to pay attention to the infrastructure behind AI. The woman choosing shampoo at Target may never think about the memory chips, servers, data centers, cooling equipment, or electricity involved when she asks AI a question.

            She shouldn’t have to.

            But as investors, we do. 

Who Controls the Front Door to AI?

            There was another common thread running through my recent encounters with AI that I didn’t initially think much about.

            All three people were using an iPhone.

            One reason new technologies can take years to reach consumers is that people need new equipment or have to learn an entirely new way of doing things. AI has arrived differently. Much of the infrastructure needed to put it into people’s hands was already there.

            None needed a special AI device or an entirely new way of interacting with technology. They already had the doorway in their pockets.

            Apple now has more than 2.5 billion active devices in its installed base. That doesn’t mean all those devices are using AI, or that Apple will develop all the underlying AI technology. But it does give Apple an important position at the point where AI meets the consumer.

            An effective AI assistant may need more than intelligence. It may need permission to interact with your calendar, email, messages, photos, applications, location, and eventually perhaps payments. Much of that information and functionality already sits inside the devices people carry with them every day.

            Apple appears to understand the opportunity. Its Siri AI, now rolling out in beta, can draw on personal information across applications and take actions within them. Apple can also incorporate AI technology developed by other companies rather than relying entirely on its own.

            Apple could become one of the primary gateways through which consumers access AI, regardless of who develops the underlying technology.

            That is not a foregone conclusion. AI could change how we interact with technology in ways that weaken today’s applications and devices. Another company could develop an assistant so useful that consumers increasingly begin their digital lives there rather than with Apple’s software.

            For now, however, we believe Apple has an attractive starting position as AI becomes more deeply integrated into everyday life. 

Adoption Is Not Enough

            Of course, growing adoption does not by itself justify the scale of investment in artificial intelligence.

            Ultimately, businesses need to turn AI into economic value. That could mean helping employees become more productive, lowering costs, improving products and services, or creating new sources of revenue.

            There are encouraging signs, but it is still early. McKinsey’s latest research found that while 80% of respondents reported improvements in their individual productivity from AI, only 37% reported a positive impact on their organization’s operating earnings. That is an important reminder that using AI and creating value from AI are not the same thing.

            That gap may also represent part of the opportunity. Businesses are still learning where AI works best, how to incorporate it into operations, and which applications produce worthwhile returns. Like many technologies, the economic benefits may build gradually and compound as companies discover better ways to use them.

            Even if AI adoption continues to grow, not every company investing in the technology will necessarily earn an attractive return. Competition, rising costs, and the possibility of building more capacity than is ultimately needed are risks worth keeping in mind.

            As investors, this is the part of the AI story we will be watching. The question isn’t whether enormous sums are being spent on AI. They are. The question is whether the economic benefits ultimately grow enough to justify that investment.           

Bringing It Together

            We don’t know exactly how artificial intelligence will develop from here, or which companies will ultimately benefit the most. That uncertainty is one reason we believe diversification remains important.

            Our investment approach does not depend on identifying a single AI winner. We are looking across the economy at established businesses that may benefit as AI becomes more widely used and the infrastructure supporting it continues to expand.

            Some of those opportunities are in technology. Others may be found in industrial companies supplying electrical equipment, cooling systems, and other components needed for data centers. Utilities and energy companies could play an increasingly important role as electricity demand grows. And companies outside the infrastructure buildout may benefit if AI increases their productivity and efficiency.

            In our view, this broader perspective is a more useful way to think about artificial intelligence as long-term investors. Not by trying to predict every technological development, but by understanding what is changing, what those changes require, and where durable businesses may benefit along the way.

            As always, we welcome the opportunity to discuss your specific financial situation. If you have questions or if anything in your financial life has changed, please call us at (800) 843-7273. We are always glad to have that conversation with you.

Warm Regards, 

Matthew A. Young 
President and Chief Executive Officer

 

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