First Order Thinking

Like most people, I’m fascinated by what AI can do today and what it might enable tomorrow. NVIDIA is making huge profits, Microsoft is embedding AI everywhere, and ChatGPT is now part of everyday routines. So my initial thought is: AI is revolutionary → AI companies will make money → Buy AI stocks. This is first-order thinking — acting on the obvious and immediate effects.

Second Order Thinking

A solid article (linked in the original post) argues that AI spending far exceeds its revenue potential, and therefore investing directly in AI stocks might not make sense right now. It points out that even if revenue rises, costs are enormous — suggesting a bubble-like situation similar to past tech cycles where investors were hurt. This is second-order thinking: looking beyond the obvious to hidden costs and unintended consequences.

Third Order Thinking

Then I came across a tweet by Prof. Sanjay Bakshi saying the best way to benefit from the AI theme is to buy energy stocks. While most people argue about whether AI companies will ever make money, he looked deeper: data centers must be powered, and electricity demand is unavoidable, immediate, paid in cash, and growing. That insight — thinking beyond even second-order consequences to the unavoidable effects — is third-order thinking.

The Lesson: How This Thinking Wins Beyond Investing

People who consistently win — whether in investing, business, relationships, or personal growth — think in layers. They resist acting on first impressions and instead ask: “What am I not seeing? What happens next? And what happens after that?” In a world where everyone has access to the same information, your competitive advantage comes from how deeply you think about what you know.

Look at any decision not just for what happens immediately, or even the next consequence — but for the third-order effects that most people miss.