What Wall Street Leaders Are Saying About the AI Bubble
A strom may be coming for Wall Street - and the biggest names in finance are sounding the alarm.
What’s brewing? Some investors are worried about a potential AI bubble.
JPMorgan CEO Jamie Dimon warned in October 2025 that "You have a lot of assets out there which look like they're entering bubble territory."
He added that a substantial market correction could hit within two years.
Goldman Sachs strategists say today's AI boom mirrors the late-1990s dotcom bubble.
Goldman's CEO David Solomon and Morgan Stanley's co-President both warned markets could fall 10-20% in the next two years.
Even the Federal Reserve Chair called the stock market "fairly highly valued."
Between November 12 and November 18, 2025, the Dow and Nasdaq both fell over 4%. This isn't a crash, but jitters are building that stocks could fall further.
The S&P 500 normally trades at a price-to-earnings ratio between 12 and 15.
Right now? It's above 30. That means investors are paying more than double the historical norm for every dollar of corporate profit.
AI valuations are a big reason why. Gartner estimates AI investment could reach $1.5 trillion by year-end.
Combined with a slowing job market, tariffs, and underlying U.S. economic concerns, uncertainty is rising.
To be clear: We’re not saying markets are in a bubble.
But, history shows no bull run lasts forever. While no one can predict a crash with certainty, you don't have to choose between protection and performance if markets do fall.
Our analysts have identified some potential opportunities that could create a promising defensive strategy, with even some chances to grow.
Let’s break down a few of those options below - but if you want even more info, our analysts did an even deeper dive in Market Briefs Pro.
The report covers other potential opportunities with real data and deeper research - and you can get access to the full report by subscribing to Market Briefs Pro today.
Why Bonds Could Work In the AI Bubble
Here's what usually happens during a market crash: investors sell stocks and buy safer investments.
That leads us to bonds as a potential defensive strategy for investors.
When bond demand rises, prices go up. During a crash bondholders make money while stock investors lose, at least in the short term.
What’s a bond? Bonds are like IOUs - you lend money to a government or company, and they pay you back with interest.
Look at the two most recent crashes:
- 2008 Financial Crisis: The S&P 500 fell 37%. Investors holding 10-year Treasury bonds made money.
- 2020 COVID Crash: Stocks plunged 20% in four months. Treasury bonds rallied as investors fled to safety.
But here's what makes this strategy different from traditional crash protection: The bonds we're highlighting yield between 4-6% annually.
That means even if the crash doesn't come for years, you're still earning competitive returns - not just sitting on cash and waiting.
U.S. Treasury Bonds: A Defensive Foundation For The AI Bubble?
U.S. Treasury bonds are considered one of the safest investments in the world.
Why? Because they're backed by the U.S. government. The government can print money to pay you back, so the risk of not getting paid is extremely low.
As of January 9th, 2026, Treasury bond yields are:
This is the highest bond yields have been in roughly 20 years.
What does that mean? If you buy a 10-year Treasury bond, the government will pay you about 4% interest every year for 10 years, then give you all your money back.
How Treasury Bonds Protect You During a Crash
If stocks crash, the Federal Reserve typically cuts interest rates to help the economy recover.
When interest rates fall, older bonds that pay higher rates become more valuable. People will pay more to own a bond paying 4% when new bonds only pay 2%.
New bonds may pay less in interest because they have an inverse relationship with interest rates - when interest rates fall, bond prices rise, and vice versa.
During the 2008 crash, falling interest rates pushed long-term Treasury bond prices up by double digits - even while some stocks were crashing.
Buying Treasury Bonds Directly
Investors may be able to gain exposure to the bond market, without actually owning a bond. The way to do this is through an ETF.
But, when you own the actual bond, you lock in that yield and aren't exposed to the daily price swings of an ETF. You know exactly what you'll earn.
That's because with an ETF, you don't actually own the bonds - You own shares of a fund that owns bonds
As a result, you own an equity security and it will act like an equity security during a market crash.
That means you're still in an equity security with daily price volatility, management fees, and no guaranteed maturity date.
TIPS: The Case Against Inflation After The AI Bubble
Treasury bonds help you gain steady income during times of market volatility. But there's a problem: Those traditional Treasury bonds do not adjust for inflation.
If we see a market downturn and the Fed lowers interest rates, higher inflation typically follows.
Inflation hit a 30-year high of 9.1% in 2022 after the Fed lowered rates to near 0% in 2020.
Plus, the U.S. dollar has been weakening. In the first half of 2025, the dollar fell by more than 10% according to the dollar index - its worst performance in over 50 years.
The bottom line: Your money buys less stuff.
Inflation never truly goes away either. It has remained above 2.5% since March 2021.
What TIPS Do Differently
TIPS automatically adjust for inflation.
If prices go up 3%, the value of your TIPS goes up 3%, too.
As of November 2025, 10-year TIPS are yielding about 1.8% above inflation.
So where's the opportunity? If a stock market crash leads to economic problems, we could see both falling interest rates and inflation concerns.
Charles Urquhart, former VP of Fixed Income Sales & Strategy at Fidelity Investments, told our analysts: "They're a wonderful asset that I think makes sense really in any long-term fixed income sleeve. Because over any long-term period of time, you're going to have periods of inflation."
Buying TIPS Directly
Just like with Treasury bonds, we recommend purchasing TIPS directly.
Once again, there are ETFs that give investors exposure to TIPS, without owning the asset directly.
But, you run into the same problem as Treasury ETFs - there are fees and you don’t benefit in the same way because an ETF is an equity security.
If you own TIPS directly, you know exactly what real return you'll earn above inflation. That can be valuable in uncertain times.
What About Cash?
Some investors also like to hold on to cash during a market crash.
Why the 5% in cash? So you have money set aside to buy equities that go on sale in a downturn.
Many opportunities become undervalued for a short-time, simply because the larger market is down, not because they’re bad companies.
Full transparency: Many companies crash for a good reason - so it’s important to do your own research before investing.
Our analysts are searching for these undervalued opportunities that have the potential to beat the market every week in Market Briefs pro (whether there’s a crash or not).
Subscribe to Market Briefs Pro to discover what these stocks are.
But having cash set aside allows savvy investors to buy these undervalued stocks at a discount and potentially benefit if the market recovers.
AI Bubble Strategy: What Could Go Wrong?
The biggest risk? Stocks could keep climbing for years, and this defensive strategy would underperform equity gains.
If that happens, you'd still earn 4-5% annually - but you'd miss bigger stock market returns.
TIPS only outperform if inflation actually rises.
Government stimulus or delayed Fed rate cuts could extend the bull market, causing bonds to underperform stocks longer than expected.
The Bottom Line
Wall Street's biggest leaders are warning of a potential correction. Some assets are trading beyond their fundamentals, which could trigger the AI bubble to burst in the near future.
Some investors are considering a defensive portfolio as a result - but one that also helps them to profit at the same time.
This is defensive positioning that shouldn’t drag down returns.
Urquhart believes the bond market can be summed up in one word: Math.
"Know what you own. Bonds are about math. If you own a portfolio in that 5 to 10 year segment and you have positive real net of inflation returns, then what you have done is to the best of your ability, you have immunized yourself against interest rate risk as best as you possibly could within your fixed income sleeve."
Investors may want to consider building this bond strategy before a market selloff happens. That way you're earning when and if a crash comes, rather than watching on the sidelines.
But investors shouldn’t wait to benefit from what the market offers - our analysts are finding potential opportunities that could see growth today.
We’re breaking down more opportunities, data, and research in Market Briefs Pro, our weekly investing report.
The reports help you be a smarter investor and identify potential investing opportunities that haven't hit the mainstream yet on Wall Street.
