Wall Street fund managers are quietly preparing for the AI bubble to burst. As artificial intelligence stocks continue their relentless climb, veteran portfolio managers are dusting off their bubble playbooks and sharing stark warnings about what comes next. The message is clear: fundamentals and valuations can only be ignored for so long.
The warning bells are getting louder on Wall Street. Fund managers who've seen tech bubbles rise and fall are watching AI stocks with growing unease, and they're not keeping quiet about it anymore.
"Fundamentals and valuations can only be ignored for so long," one portfolio manager told CNBC, echoing concerns that have been building behind closed doors for months. It's the kind of statement that makes traders pause mid-click.
The AI rally has pushed companies like Nvidia and Microsoft to valuations that would have seemed fantasy just two years ago. But seasoned fund managers are starting to see uncomfortable parallels to previous tech bubbles - the kind that end badly.
What's different this time is how prepared the smart money is getting. Portfolio managers are actively developing what they call "bubble recipes" - specific metrics and warning signs that signal when to start heading for the exits. These aren't your typical P/E ratios either. Fund managers are tracking everything from data center utilization rates to enterprise AI adoption speeds.
The concern isn't that AI is overhyped - most managers believe the technology will reshape entire industries. The worry is that the market has priced in perfection for companies that still need to prove they can turn astronomical valuations into sustainable profits.
Several fund managers point to revenue growth deceleration as their primary warning signal. When AI companies start missing quarterly growth targets, even by small margins, the market correction could be swift and brutal. The infrastructure costs alone for companies like OpenAI and Google are staggering, and margins remain under pressure.
What makes this particularly concerning is how concentrated the AI gains have been. A handful of mega-cap stocks have driven most of the market's AI enthusiasm, creating a vulnerability that reminds veteran managers of the dot-com era. When sentiment shifts, there aren't many places for investors to hide.
The timeline for a potential correction remains anyone's guess. Some fund managers are already reducing their AI exposure, while others are doubling down on what they see as a once-in-a-generation opportunity. But almost everyone agrees on one thing: when the fundamentals and valuations eventually realign, it won't be gradual.
