Market crashes follow the same warning signals but AI brings new unpredictability

Investors are on the hunt for new ways to protect their portfolios if the Al bubble pops.

- Barney Macintyre

Trades of financial products that pay out if US tech companies default on their debts have increased 165% since August, according to the clearinghouse DTCC.

But these products, known as credit default swaps, aren’t new. Michael Burry, the contrarian investor portrayed by Christian Bale in The Big Short, used them to bet on the collapse of the US housing market in 2008.

Finding a “clean” hedge against Alin 2026 isn’t easy. Tech accounts for roughly a third of the US stock market, which itself represents more than 45% of global equity value. But getting out now risks losing out on future gains. The best most investors can do is to ride along, while keeping an eye on the vulnerabilities that have historically preceded a crash. Here are a few:

Overvaluations

At the peak of the dotcom bubble in 1999, the Nasdaq was trading at a price-to-earnings (P/E) ratio of 72. That means buyers of the stock were paying $72 on average for every dollar of profit at that time.

Valuations these days aren’t quite as stretched. The Nasdaq is currently trading at a P/E of roughly 34.