This marks the 1346th original article from 'New Energy Frontier.' Click above to follow and give our account a 'star'. The article represents the views of 'New Energy Frontier' and does not serve as investment advice. The author does not manage investment groups, recommend stocks for a fee, or handle client portfolios.

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Undoubtedly, the technology sector has always held a unique position in capital markets. Throughout the history of global stock markets, from the internet boom to the rise of mobile internet, the new energy revolution, and now the sweeping wave of artificial intelligence (AI), tech stocks have created countless wealth myths, delivering returns of tenfold or even hundredfold over a decade.

In reality, many companies in the consumer and healthcare sectors have also experienced similar exponential growth. So, why does the tech sector always stand out so prominently?

Because tech stocks are akin to shooting stars—they often experience rapid, concentrated bursts of growth within short timeframes, and when they do, it tends to be a collective surge across the entire sector.

However, when it comes to tech stocks, traditional investment paradigms often fall short. Value investors are frequently deterred by the high valuations of tech stocks, while trend-following investors risk being wiped out by the brutal fluctuations of industrial cycles.

01 Investing in Tech Stocks Requires Bold Imagination

So, how exactly should one invest in tech stocks? Leo increasingly believes that investing in tech stocks demands a significant dose of imagination!

Yes, imagination—the courage to envision what could be.

This may sound abstract, and many might dismiss it with a sneer. After all, isn't investing a science, not an art? Relying solely on imagination for investment decisions—isn't that just asking for trouble?

Wait a minute. Let Leo finish.

Investing is challenging, and investing in tech stocks is even more so. If investing inherently goes against human nature's desire for certainty, then investing in tech stocks does so even more profoundly.

Human nature craves certainty, but investing is about predicting the future—a direct contradiction. This instinct is why many investors, especially those with conservative risk preferences and a high demand for certainty, struggle with tech stock investments. The lofty price-to-earnings (P/E) ratios often scare them away.

Precisely because tech stock valuations are generally high—sometimes extremely so—the required risk premium is also higher. But to truly capture that risk premium, we must be both courageous and accurate in predicting a company's future development.

For instance, a tech stock with a 500x P/E ratio is undoubtedly extreme. A company cannot sustain such a high valuation indefinitely. Either its valuation will collapse, or its earnings must grow rapidly enough to justify it. The latter is what investors hope for, but achieving it requires deeply researching the company and the industry while daring to imagine the possibilities. These factors are equally important, with imagination perhaps even taking precedence.

Without bold imagination, we cannot fully grasp the impact of the internet on humanity. Without it, we cannot comprehend the power of mobile internet. Without it, we cannot fathom how new energy technologies have evolved to their current state. Similarly, without it, we cannot understand the hype surrounding the current wave of AI infrastructure development.

Many now claim that AI hardware is grossly overvalued and on the verge of collapse.

02 Is the AI Bubble Really That Big?

If we judge based on the current state of the world, the bubble does appear enormous. Countless stocks have surged tenfold, some even a hundredfold, with P/E ratios routinely exceeding 100x, often reaching several hundred times, and sometimes even thousands or tens of thousands. By any measure, this looks like a bubble.

But what if we dare to imagine: What will happen once AI technology matures?

Earlier this year, Leo mentioned at an offline fan meeting that the essence of this AI wave is 'creating humans'—the first time humanity has 'created humans' through industrial methods. These 'humans' will far surpass carbon-based life in both intelligence and physical capabilities.

Leo acknowledges that this sounds far-fetched now, even like nonsense.

But that's only because the technology isn't mature yet. If we extrapolate based on its fundamental nature, AI is advancing along these lines. For instance, generative large models are replacing traditional search engines. Instead of helping you match information from the vast internet, they collect, organize, and summarize it to deliver results directly—exactly what humans used to do. The same applies to image and video generation and coding; all these functions entirely replace previous human tasks.

Autonomous driving follows the same logic—it replaces human drivers.

And then there are robots, whose future potential is even vaster. As AI and dexterous manipulation technologies mature, robots could replace humans in nearly all tasks.

Dare to imagine: Once AI technology matures, humanity will achieve mass production of 'humans' through industrial methods. These beings will not only possess superior intelligence but also robust physicality, enabling them to perform countless tasks that were previously impossible or inefficient. How much will human productivity soar?

Given this, do you still think the current hype around AI infrastructure is excessive?

On the contrary, we're still far from that point. The fastest-developing area in AI today is generative AI, but the ultimate destination is physical AI—there's no doubt about that.

Based on this imagination, there's little need to worry excessively about AI. For example, many criticize AI's lack of a viable business model, but that's only because the technology isn't mature yet.

In more developed areas, like coding, many large models are already replacing programmers, as evident from layoffs at major internet giants.

This trend will gradually manifest in other fields. Wherever AI technology matures, this phenomenon will occur. The next likely area is autonomous driving, followed by humanoid robots as their technology matures and spreads across industries.

Thus, the importance of imagination in tech stock investing is self-evident. Without it, many dare not invest, and even if they do, they cannot hold onto their positions. High risk demands high reward, but you cannot achieve high reward without holding through volatility.

Moreover, all the above deductions aren't just based on Leo's personal 'imagination'—they align with the underlying laws of technological development.

03 The Nonlinear Nature of Technological Development

Technological breakthroughs never follow a linear path; they are inherently nonlinear. This contradicts the human brain's innate 'linear thinking' bias.

We instinctively extend past trends into the future to predict outcomes. This approach often works for traditional industries (e.g., food and beverage, utilities), where growth trends for excellent liquor companies or highway operators are generally smooth, predictable, and linear.

However, the tech industry follows a classic 'S-curve' trajectory.

In the early stages of technological emergence, progress is slow as the technology undergoes exploration and trial-and-error, with unclear applications. Viewed through a linear lens, it appears mediocre, even frothy or fraudulent. But once the technology crosses a critical threshold (usually through cost reductions or breakthroughs in computing power/algorithms), it enters a 'nonlinear' explosion phase.

Take the current global AI boom. Before ChatGPT, AI was long derided as 'artificial stupidity,' with only sporadic conceptual hype in capital markets. If one linearly extrapolated from early 2022, no one could have predicted that AI would trigger 'AI phobia' across global markets within a year or two—software stocks plunging over disruption fears while hardware giants (e.g., NVIDIA, server manufacturers, liquid cooling firms) saw unprecedented growth in both earnings and valuations.

That's the power of nonlinearity.

Once technology crosses an inflection point, its penetration rate surges from 1% to 10%, 50%, or even reshapes how the world operates. Traditional valuation models like static P/E or discounted cash flow (DCF) become useless here, as they cannot quantify a demand that hasn't been fully created yet.

Only through bold imagination can investors pierce the current fog and envision that steep, upward exponential growth curve.