Wall Street Is Getting Nervous About The AI Bubble

Wall Street is quietly getting worried about AI stocks, and most people are not paying attention because not that long ago, if a company said that they were going to dump money into AI stocks, that stock would boom on the news. Now that's not the case. I'll show you what I mean. In the end of 2025, when Meta announced that they were going to invest $30 billion into AI infrastructure, their stock saw its worst day in 3 years when it fell by 11%. But that's not all. Oracle is seeing the same thing happen. Oracle is dumping so much money into AI that Barclays says that they're going to run out of cash by November 2026, this year, and their stock is feeling the pinch. And now Wall Street is changing their stance on how they invest in AI stocks, and this matters not just to people that are investing in AI or tech, but to people that have 401k accounts, to people that are investing in the S&P 500, to people that have money in the stock market, because this is going to have a broad impact on all investors. The reason why is because the S&P 500, which is the group of the 500 largest companies in the stock market, is so heavily weighted now by a few tech companies which have a lot of influence on AI. The Mag7, these are the biggest seven companies in the stock market. That's Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla. Those seven companies make up more than a third of weight of the S&P 500. The other 493 companies make up the other two thirds, which means if one of these tech companies gets hurt, it's not just that stock that gets hurt, it's the entire stock market that it pulls down, the entire market, it pulls down 401k accounts, which is something you want to pay attention to because that means people are continuing to hope and pray that these AI companies and companies that are involved in AI are going to continue growing at very good speeds because if they don't, that can hurt broader markets. Well, now Wall Street is starting to get concerned, not just about the technology of AI, but more specifically about debt and the amount of debt going into AI. The reason why is because Bank of America just brought out a report which said that these tech companies are anticipated to spend 94 percent of their operating cash flow on AI infrastructure, meaning they're spending almost every dollar that they make back into AI and somebody will succeed, but some of them will not. And when they stop succeeding because somebody is going to not succeed, that is going to have a painful effect on the market. And the reason why they're concerned more specifically is because tech companies in 2025 borrowed $121 billion. Now, it's hard to fathom why that matters, but the reason why that matters is that is four times the average that they have borrowed over the last five years. So not only are they spending more on AI, but they're borrowing significantly more dollars on these AI investments. And some of them might not pan out. And if you're borrowing so much money and you don't see a return on that money, that's going to have a consequence. And some companies are not going to succeed due to that consequence. And this is that concern that Wall Street is now pricing in because certain companies, when they invest in AI, there's no clear path to revenue or profitability. For example, Oracle. I talked about them in the beginning of this video. They're borrowing so much money now that their bonds are trading like junk bonds. Oracle is a huge tech name. But because they borrowed so much money, investors are so concerned about their ability to pay this money back. They're demanding junk bond interest rates. They're not actually junk bonds, but they're trading as if they were junk bonds. But not just that. Oracle's credit default swaps. A credit default swap is essentially saying we believe that Oracle is going to default. They're going to go bankrupt. These credit default swaps, these insurance contracts are now at the highest levels that we have seen since the 2009 financial crisis because people are not confident in their ability to continue paying back these debts. Why? Because they're putting all this money into AI. And if you would have said this 12 months ago, people would have said they're putting their money into AI. They're going to make so much money. They're going to be the most valuable company in the world. And the stock would be going up. Today, because they're putting their money into AI, because they don't have a clear path to profitability, investors are being more picky. And they're saying, we don't want to own that. It is a very clear difference today than where we were 12 months ago. And it's changing how investors look at AI stocks. Now, to be clear, this doesn't mean that there's no value in AI. It's a shifting in how companies and investors are looking at AI because some companies have a clear path of revenue with AI. For example, what Goldman Sachs has pointed out in their most recent report is that in 2025, AI stocks all essentially moved together. There was an 80% correlation of AI stocks. So if one AI stock went up, then 80% of AI stocks also went up. Today, it's 20%, meaning investors are not looking at all AI stocks the same. They want to see which companies are actually seeing growth. For example, Amazon, they're using their AI to actually directly generate revenue. When AWS grows, AI grows, they make more money. And so when Amazon announces that they're putting money into AWS, their stock has been benefiting versus when Meta says it, because there's no clear path to profitability. Maybe they can use the AI to run better ads, but there's no clear path. Their stock got hit when they said that they were going to invest so much money into AI. Same with Oracle. And this is where history doesn't exactly repeat itself, but it does rhyme. We can take a look at what happened in the 1990s leading up to the dot-com bubble bursting, because we're seeing some more similarities happen today. In the 1990s, companies were borrowing billions of dollars. Why? Because they wanted to be a winner in the internet race and in the cable optic race of building these internet infrastructures for what was coming in the 2000s with the internet. Well, the infrastructure is still used today, but not every company is around. Some companies borrowed a lot of money and saw huge success. Other companies borrowed a lot of money trying to win, but went bankrupt. And that might be what we're seeing now. Not every company will be able to survive. And that's what Wall Street is starting to realize. And that's what you want to prepare for. It doesn't mean that AI is going to go away. It doesn't mean that AI doesn't have value. It doesn't mean that you can't monetize AI, but it means that when companies are borrowing insane amounts of money to hopefully win in AI, more companies will fail, because debt ultimately increases risk. And some companies are not going to be able to service all of that debt. So what does this mean for you? I'm going to get kind of technical here, and I'll speak more broadly after. If you are an investor, especially if you're looking at tech stocks that involve AI, here's a few things that you want to pay attention to that my analysts wanted me to say here. Number one, pay attention to free cash flow. If more companies are going into negative free cash flow, meaning they're spending all their money and then some for their AI investments, that's a big risk because we're seeing more and more companies do that today. So pay attention to free cash flow. Number two, look at credit spreads. What that means is if a company is borrowing money to do the AI investment, look at how investors are valuing these loans. Like Oracle. Oracle is borrowing money to do AI investments, but investors are looking at them like junk bonds. They don't believe that Oracle is going to pay back, which is why they're demanding such high interest rates. So if you're looking at investing in a tech company, take a look at what their bonds are looking at. Take a look at these credit spreads. That way you can get an idea of how investors are valuing their debt. Then look at their AI revenue and their AI revenue growth. Because companies that are going to see the growth now in today's economy need to actually be able to make money off the AI. If they don't have a path of profitability, what we're seeing happen right now is that their stocks are getting hit when they invest more money in AI because it's much more speculative and investors are paying attention to that. And the fourth one and the big one is taking a look at slowdowns in spending because that is going to indicate that they're running out of money and that they're getting desperate. Because through 2025, companies had access to unlimited amounts of money. If you were creating something with AI on the back of it, investors were dumping money, throwing money at you. They still kind of are. But what we're seeing is they're getting more picky. And if that trend continues and some companies now have to slow down spending because they've overspent into AI, that could be a big red flag that you want to pay attention to. So if you're an investor in these tech companies, pay attention to these four things. That is number one, free cash flow. Number two, credit spreads. Number three, AI revenue growth. And number four is, of course, paying attention to spending in these companies. Now, generally, what does this mean? Does this mean you shouldn't invest your money? No. What this means is if you are an investor, be a long-term investor and know your game. If you're a long-term investor, this doesn't change anything that you're doing so long as you're investing in a good company. But it also means that opportunities might be ahead because we know that AI is not going away. I can tell you that from firsthand experience because I am seeing how fast AI is growing and how it has changed our business and how it's changing many businesses around there. Businesses are using AI more than ever, but a lot of businesses still aren't touching AI. That's a huge opportunity. AI is going to grow, but every company wants a piece of this new economy, this AI economy. And a lot of these companies don't have enough money in their bank account to go and fund this growth, so they're going into debt. They're borrowing against their assets to try to capture a piece of that growth. Some of these companies that are borrowing are going to succeed. Some of them are not. And when the first big one goes bust because they've over borrowed, they've over leveraged, and they cannot continue the spending, that is going to trigger panic. Because when people see a big tech company go bankrupt because they couldn't make the AI thing work, it is going to instill some fear. But that is where the opportunity is going to be. And a lot of people don't want to say that, but in reality, that creates some of the best opportunities out there. Because recessions and market crashes create more opportunities than any other time, because they allow financially savvy investors to come in and buy at a discounted price. Now, you don't need to wait for a downturn to come in and buy, but if you are an investor and you believe in the future of technology, understand that debt creates opportunity, because some companies are going to be able to use that debt profitably. Some are not. Some are not going to be able to out earn all the debt that they took on. I don't know which one yet, but what I want you to understand is when that first company goes down because they borrowed too much and they couldn't access more capital to continue their spending because it couldn't monetize the AI, some people are going to get scared. They're going to say that, oh, this is the end of the AI bubble. The AI bubble is going to come down and people are going to start panic selling. But that is where the opportunity is also going to be if you have access to cash and you know how to analyze investments. That's what I want you to pay attention to because it's going to be a lot of crazy headlines. People invest based on the news. They should be investing based off of research. They don't pay attention to what's actually happening in the economy and they're not long-term investors. They become traitors even though they say that they're investors. So if you're an investor, understand what's happening. Wall Street is changing how they invest their money to AI stocks. Be smarter with investments and if you want to know how to research investments and find opportunities before they hit the headlines, I have a free investing masterclass that I put together. It's a brand new one where I walk you through how you can get started as an investor and find hidden investment opportunities before they hit the headlines. I'll show you the exact framework that my firm and I use to research investment opportunities. If you want to watch it, all you have to do is register and when you do, you're also going to get access to market briefs, which is my newsletter for investors, completely free. If you want to get the investing masterclass and market briefs all for free, I got the link for you down in the description below and if you got value out of this video, the best thank you is a referral. So if you could, please share this video with a friend, family member, colleague, a fellow investor. That way we can continue to spread this type of financial education. Thank you.