05 Dec What does the AI bubble mean for my investments?

Q. I’m concerned about this so-called AI bubble and what it could mean for my investments. How can I tell if I’m overly invested in the companies that could take a hit – and really what does it all mean?
— Investor

A. Oh boy. Here we go.

These days, it’s almost impossible to miss a headline or news story regarding artificial intelligence (AI) and whether the stocks related to this industry, most of which have seen dramatic increases in their stock prices, are destined for a decline.

Market bubbles date back to the 17th century when the prices of tulip bulbs in the Netherlands experienced a rapid increase only to be followed by an equally rapid collapse, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

Other well documented bubbles include the ‘dot-com ‘stock implosion from 1995 to 2001 and the financial crisis of 2007 and 2008, which is often blamed on the housing market but was a result of a massive build-up of risky debt, Mott said.

“There is no hard and fast definition of what a bubble is nor are there usually any signs that it is about to burst,” she said. “A stock market decline related to a market bubble may not happen all that often, but there will always be periods of time within the course of a year when selloffs occur.”

Every investor should understand what they own in their portfolio and why, whether they are making the investment choices or are working with an advisor, she said. Ideally, the investments should be well diversified, reflect the owner’s tolerance for risk and the timeline over which the assets may be needed as a financial resource, Mott said.

A good place to start to gain a better understanding of your portfolio’s exposure would be the website of the custodian that manages the mutual fund or exchange traded fund (ETF) that you own.

“Often, there will be a listing of the top holdings,” she said. “An online search for stocks related to artificial intelligence will enable you to create a list of names that may have exposure through one avenue or another.”

The so-called Magnificent Seven is a group of technology companies which have been market leaders for the past few years, Mott said. Their stocks have performed exceedingly well and now comprise a large percentage of many mutual funds and ETFs. Many are exposed to AI as chip makers, providers of platforms, software, data center infrastructure, security and more, Mott said.

Once you know what the portfolio holds, you may decide to “lighten up” or sell a portion of one or more of the investments, she said. Before doing so, be sure you understand the tax-related impact that may result from capital gains.

And, more importantly, Mott said, know what you are going to purchase with the proceeds.

“It may be tempting to hold onto the cash and wait to see what happens in the market before reinvesting,” she said. “Unless the cash is needed in the next 12 to 24 months, there is a lot of research that supports the notion of investing for the long-term and not trying to time the market.”

“Needless to say, there is never an engraved invitation that will tell you when to get back in—it often happens when it’s least expected,” she said.

Mott cited a J.P. Morgan study that found over the past 20 years, being fully invested in the S&P 500 would have generated a 10.2% annualized return, while being out of the market for the 10 worst days over that entire time period would reduce the gain to 6.0%. It should be noted that many of the best days followed periods of extremely bad market activity, she said.

While it’s understandable to feel uneasy about the rapid rise of AI-related stocks, the most important step is to make sure you clearly understand what you own and how much of your portfolio is truly exposed to this theme, Mott said.

“Ensuring that your allocation reflects your long-term goals and your comfort with risk, may mean making some adjustments, but remember that periodic market pullbacks are a normal and unavoidable part of investing,” she said. “A well-constructed, diversified portfolio is designed to weather these cycles so you can stay on track over time.”

Email your questions to .

This story was originally published in December 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.