How Much AI Can You Own and Still Sleep Soundly?

Waking From the Bullish Dream

Last week, the bull market turned four. Since its 2022 low, the S&P 500 has more than doubled. The Philadelphia Semiconductor Index is up nearly 500%, and AI favorites like Nvidia(NASDAQ:NVDA) and Micron Technology(NASDAQ:MU) have each returned more than 1,800%.

Do the math. Put 5% of your portfolio into one of those stocks in 2022, let the rest match the S&P 500, and that one holding now makes up nearly a third of everything you own. Nobody complains while it climbs.

But the week also offered a taste of the other direction. Chip stocks fell for seven sessions in a row, and on Wednesday, the Nasdaq and S&P 500 had their worst day since July. With that much of your money in one stock, a week like that lands hard.

Yet America's biggest tech firms are on course to spend roughly $800 billion on AI infrastructure this year, and Goldman Sachs(NYSE:GS) expects $1.2 trillion in 2027. Much of that money flows to the companies that have already made AI investors rich. Your winners may keep winning . . . and they might also have grown bigger than you can stomach.

In the months ahead, we'll share ideas to help you stay steady through weeks like this. Each comes from the framework Team Rule Breakers uses in its search for market-beating stocks over years and decades. It has six habits that shape how you behave as an investor, six traits to look for in a company, and six principles for running a portfolio. Three of those principles help you build one. The other three help you manage it as it grows, and the first of those is our starting point: Establish your sleep number.

What's Your Sleep Number?

Some mattresses let two people sharing a bed each set their own firmness, from 1 to 100. One partner might pick 35, the other 60. Both sleep fine.

Investors can borrow the idea. Motley Fool co-founder David Gardner calls it your sleep number: "the highest percentage you'd allow any holding in your portfolio to reach while still sleeping soundly at night."

The number is personal. Some investors are happiest near 1%, spread thin across index funds. Many settle around 10%. It tends to drift down with age, especially as retirement gets closer.

Pick It Before You Need It

Pick yours before you need it. Let your best stocks grow, and when one presses against your number, trim it and move the cash to your other winners, the companies already proving you right. A great business can stay in your portfolio without keeping you up at night. You simply own a little less of it.

Over a few decades of investing, you'll likely live through several nasty bear markets. Each one is easier to sit through when no single stock can sink you. Decide on a calm day how much risk you'll carry, and you won't have to make that call again in a panic.

If you also own index funds, include them when you check your sleep number. Big AI names carry a hefty weight in U.S. index funds, so your real stake in Nvidia may be larger than it looks.

Staying invested takes faith that AI spending will keep climbing into 2027. You can't control that. But you can control how much of your money rides on any one stock when the next bad week arrives, and that's the job your sleep number does.

The Rule Breakers Team has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.