The Artificial Intelligence stock market bubble is beginning to burst, causing pain for retail investors whose brokers have concentrated their portfolios in the leading AI plays. 

Many brokers added fuel to the fire by buying on margin or trying to capture income from AI stocks using options—puts and calls to juice returns. This could end very badly for retail customers.

The AI  trade is reminiscent  of the Year 2000 internet bubble which burst and decimated Mom and Pop investor retirement portfolios. Every dot com stock (think Pets.com, etc) was pitched by brokers as the “must have” investment of the future. Many of today’s AI names (think data centers, Coreweave ) have been touted as “can’t miss” plays but could suffer if the market determines that these stocks can’t generate sufficient profits to justify the massive AI spending spree.

Today’s market conditions have parallels to the 2008 Financial Crisis debacle. In 2008, unscrupulous rating agencies buoyed Mortgage Backed securities and CDOs which sunk the market . Today,  CDOs and shaky loans to finance Data Center building could rock the bond market.

A recent Bloomberg report sheds light on systemic risk in the Insurance Industry which has heavily invested in complex and opaque private credit products which bear approval ratings from dubious rating agencies. The result could leave policy and annuity customers holding an empty bag.

Retail investors should spend some time with investment fraud lawyers to see if their investment losses are the result of unsuitable investment advice or investment fraud.

As the great Yankee philosopher Yogi Berra once said, “it's like deja vu all over again”.

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