The AI Bubble May Burst: 5 Ways Retirees Can Protect Their Portfolios
"AI can be transformational, but it still creates investment risks." Here are five steps older investors can take if AI corporate debt triggers a market crash.
Investors have piled into artificial intelligence stocks over the last couple of years as the values of the so-called Magnificent 7 tech stocks and artificial intelligence companies have skyrocketed.
The tech-heavy Nasdaq 100 index gained about 49% over the last two years. Investors who placed early bets are no doubt elated. Notable stocks include AI chip maker Nvidia, which is up 81% over the period, including dividends. Google parent Alphabet returned 109%.
Even the gold standard of diversity — the S&P 500 — has been overwhelmed as the Mag 7 companies now account for one-third of its total market value.
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At the same time, the AI boom has created a borrowing frenzy of tens of billions of dollars. Those loans, combined with higher borrowing costs and tech revenues that aren't climbing as fast as stock prices, could lead to a stock market crash. You should have a plan for how to handle the worst case scenario — especially as an older investor who may not have enough time to weather a prolonged downturn.
Overall, the sector is providing gains, which encourages individual investors to continue buying, but continued gains are not guaranteed. "AI can be transformational, but it still creates investment risks," says Richard Yashenek, chief investment strategist at Intech, an investment management firm.
Ed Zitron, CEO of the media relations and research firm EZPR, provides ample data on why to be worried. Big tech companies have invested a lot of money in AI but so far have generated relatively little revenue from those investments. For instance, he writes that Amazon will have invested $650 billion into AI by 2028. For all of 2025, estimated AI revenue was a little over $171 billion, accounting for 26% of the investment. Amazon's first-quarter 2026 data suggests $180 billion this year.
Other companies have similar outcomes so far. Moreover, much of the cash raised for AI investment has been generated by corporate bond sales. Between 2019 and 2025, companies raised a cumulative $917.8 billion in bonds, according to S&P Global Market Intelligence. That wouldn't matter if the yield of U.S. 30-year Treasurys hadn't risen to 5.2% from 2.58% in 2019.
That means all companies are paying more to borrow money. If the AI companies aren't making enough to cover their increasingly expensive debt load, they may begin to default.
Not everyone shares this fear. "Our premise is not aligning with those concerns and we think that borrowing is not a problem," says Bill Northey, U.S. Bank's senior investment director. "The data centers AI buildout will reap rewards over time. It doesn't mean all will be winners or successful."
Nevertheless, if a major AI stock defaults on significant debt, it could create a domino effect. "A lot of times you have bear markets triggered by debt problems," says Sam Stovall, chief investment strategist at research firm CFRA.
There are many historical instances of similar events: the financial crisis of 2007-2009, when the S&P 500 fell 57%, and the dot-com crash of 2000-2002, when the Nasdaq index fell 78% and didn't recover for 15 years. So to paraphrase Bette Davis, "Fasten your seat belts, we could be in for a bumpy ride."
Here are five steps older investors should take if the AI bubble bursts.
1. Don't panic
Investors must remember not to panic. Don't let your emotions become your worst enemy," says Stovall. "That can turn market volatility into a real financial loss." That advice is easy to give but difficult to follow, especially when TV and radio shows are blasting the airwaves and terrifying the audience.
So turn off the TV. The media thrives on fear, uncertainty and doubt (there's even an acronym for that, FUD).
By limiting how much media you consume, it will be easier to stand tight until the market settles, experts say.
2. Don't think you have to sell
You lose money when you sell stocks in a crash. "If you are a dividend investor, you will still get paid based on the number of shares you own ... the share prices are cut in half," says Stovall.
3. Diversify your portfolio
"A broad selloff doesn't mean a company has become less valuable, and a drawdown is not a signal to sell," says Intech's Yashenek. Having a diversified investment portfolio is important.
And it should be diversified "before things go wrong," he adds.
Warning: The stalwart S&P 500 index-tracking exchange-traded funds don't fit the bill. The large tech stocks dominate the index. If those mega stocks have problems, then all the stocks will fall, at least for a while. Look for stocks with strong cash flow, growing revenue and limited debt.
4. Rebalance or look to buy when the time comes
You'll know when the market has troughed, Stovall says. On average, when 15% or fewer S&P 500 stocks are trading above their 200-day average, then it's likely to hit bottom.
Historically, stocks that get hit the most in a market downdraft will likely recover the most as the market returns to normal. Likewise, those that had the lowest stock depreciation will have the smallest bounce back, CFRA data shows. So, it pays to buy the most pummeled stocks at the market bottom.
5. Get used to it
"Capital markets include inherent volatility; investors should expect volatility over time," says U.S. Bank's Northey.
Financial advisers should help clients understand that volatility isn't bad in the long term, but people who are retired or preparing to retire typically have a shorter risk horizon. When risk horizons are low, portfolios need to have lower-volatility assets overall.
Market volatility can be unsettling, particularly when you’re approaching or already in retirement. But the right response depends on your time horizon, income needs, risk tolerance and how your portfolio is structured. A financial adviser can help you review your investments, identify areas where you may be taking too much risk and build a plan designed to weather market downturns.
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Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that's right on the money.
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