Is The AI Bubble Already Bursting?
(Written by Bert Dohmen & Dion Dohmen, contains excerpts from our latest November 1, 2026 Wellington Letter)
The huge euphoria over the AI growth and infrastructure buildout got overblown and now has to deflate. Investors are finally asking the same question we have been asking since June: who’s going to pay for all of this?
October’s trading month came to a close last Friday with huge month-end selling that spread broadly, although the AI trade was once again the most heavily hit. More than $1.5 TRILLION in market value was wiped out in U.S. stocks, that’s astounding!
In comparison, the “Black Monday” crash on October 19, 1987 erased around $500 billion in one day. The market top was actually made in August of 1987, two months prior.
It is important to note that real market tops usually occur earlier than the attention-getting crash that follows several months later. By that time it is too late for the late bulls who entered the “hot” stocks. They have big losses and the average investor always makes the same mistake, namely not to sell a stock that is held at a loss.
In other words, stocks don’t all make a top on the same day. In fact, some sectors may even still look strong in order to complete the deception that is not an important top. The top in the tech and semiconductor sectors occurred in the June of this year. However, no one really paid attention.
Always remember the market is geared to fool as many people as it can. Wall Street is not your friend.
The first big “selling spree” usually takes place in the most overleveraged and the most overvalued stocks. That triggers margin calls, which requires the selling of other stocks or assets in order to get the money to meet the margin calls. That is why gold and silver have had big downward corrections as they have been used as a source of cash.
Last Friday (October 30), we saw heavy indiscriminate selling, hinting at signs of a potential liquidation and margin calls by big hedge funds, although this is unconfirmed.
The hyperscalers (mega-cap tech stocks) dragged the NASDAQ Comp lower, plunging 2.8% by the close, its worst day since June 5. For the month of October it plunged 5.3%, its worst month since March 2025.
The S&P 500 was also a victim of the mega-cap selloff as it gapped lower by 1.8% and closed negative for the second consecutive month.
To us, the continued heavy volume selling we’ve been seeing confirms what we’ve been saying for the past few weeks: the market is in “risk-off” mode and “the bears are in control.”
We’ve been seeing the worries over AI financing grow lately, creating a huge dark cloud that looms over the market.
We warned our members about this in our October 18th Wellington Letter,
“We continue to warn our members to ignore all the hype constantly promoting this (AI) sector in the mainstream financial media, at least right now. The risk is too high at this time. This puts the large cap indices that are heavily dependent on these chips stocks at risk (S&P 500, NASDAQ Comp & 100)…
With the troubles surrounding the AI buildout plans, as we explained above, these stocks could became huge liabilities when they report their earnings in the coming weeks, especially given their huge weightings in the S&P 500 index.”
That’s exactly what has been unfolding lately, first with Meta’s 3Q earnings report after the close on October 21, then On October 28 when Microsoft and Google reported for 3Q.
GOOG dragged the rest of the hyperscalers, along with the NASDAQ and S&P 500, down with it late last week, plunging 13.5%. See the daily chart below and note the high volume at the bottom of the chart:
All mega-caps were pulled lower and money fled out of these overbought names. Take a look at the daily chart of the MAGS ETF (“Mag 7” stocks) below. Since September 30th we’ve been warning that it “(ran) the risk offorming a false upside breakout.”
On October 22 it broke below the upside breakout range (red shaded area, light blue horizontal line), when we wrote in our shorter-term trading services, “two consecutive closes below 70 would confirm the false upside breakout.”
Last Thursday and Friday it did exactly that, breaking back below support and closing below 70.
This, to us, confirms the false upside breakout. Short-term momentum has fallen off a cliff since its October 13 peak (red arrow) while selling volume has outweighed buying volume for most of October and accelerated the past three days (bottom, oval).
Therefore, further downside in these heavyweights is expected, which could turn into contagion for the broader market.
CONCLUSION: We’re seeing signs that the AI bubble may now be bursting, one stock at a time, as leveraged investors flees these stocks, causing big downgaps on the charts. This leaves a number of other investors trapped now “holding the bag.”
That creates huge supply above, which will be hard to fill in this environment, as those investors will want to sell their shares on any rally in an attempt to “get out even.” Fundamentals and valuations don’t matter at a time like this. It’s a race for cash.
Therefore, with the apparent unwinding of the AI trade underway, we would avoid buying the dips in these and related names at this time. In poker, there is the saying: if you look around the table and can’t find the sucker, then the sucker is YOU. Don’t be the sucker.
If the AI bubble is now bursting, and last week’s huge selloff was an important warning for the markets, will this now turn into a correction, bear market, or worse, the next financial crisis?
We dive into what we believe could be “The Trigger For The Next Global Financial Crisis” in our latest 18-page special report. And for a limited time, ZeroHedge readers can get a FREE copy at DohmenCapital.com/FreeReport2026.
In this report we also reveal important strategies smart investors can use in order to protect their hard-earned wealth and profit when most others panic.
Click this link to claim your free report
Wishing you successful investing,
Bert Dohmen & Dion Dohmen