Investors mistakenly believe that buying AI stocks is a direct bet on the technology itself. Dalio warns that, like past tech revolutions, the underlying technology will thrive, but most individual companies will fail due to intense competition. The investment risk lies in picking the few corporate survivors, not in the technology's potential.

Similar to the dot-com era, the current AI investment cycle is expected to produce a high number of company failures alongside a few generational winners that create more value than ever before in venture capital history.

A safer way to play the AI boom is to invest in companies selling the underlying compute infrastructure rather than the hyperscalers buying it. This strategy captures the upside of the secular trend while avoiding direct exposure to how the massive capital expenditure is funded, which may involve risky credit.

In the AI gold rush, don't bet on the "miners" like Google and Meta, who are spending billions on a new, high-risk game. Instead, invest in the "pickaxe makers"—the essential toll bridges like TSMC and ASML that every AI company must pass through, ensuring your investment has a higher probability of success.

If AI is truly transformational, its greatest long-term value will accrue to non-tech companies that adopt it to improve productivity. Historical tech cycles show that after an initial boom, the producers of a new technology are eventually outperformed by its adopters across the wider economy.

Technology's share of the economy will grow as it underpins every industry. Conversely, the services sector, which sells human intelligence for repetitive tasks, is fundamentally threatened by AI that can automate processes and commoditize expertise.

The increased volatility and shorter defensibility windows in the AI era challenge traditional VC portfolio construction. The logical response to this heightened risk is greater diversification. This implies that early-stage funds may need to be larger to support more investments or write smaller checks into more companies.

Drawing a parallel to the early internet, where initial market-anointed winners like Ask Jeeves failed, the current AI boom presents a similar risk. A more prudent strategy is to invest in companies across various sectors that are effectively adopting AI to enhance productivity, as this is where widespread, long-term value will be created.

While venture capital often praises contrarian thinking, during moments of fundamental technological shift like the current AI boom, the most rational strategy is to be consensus. The market is so open and growing so fast that betting on the obvious winners is the right move.