Key Points
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Some investors are worried that the S&P 500 has become a highly concentrated bet on AI. What if AI doesn’t work out?
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Even if there is a stock market crash soon, many investors will be better off having earned the gains on the way up.
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The S&P 500 has delivered annualized returns of 9.98% over 98 years, underscoring the value of staying invested for the long run.
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Lots of investors right now are feeling antsy about the stock market being too top heavy with artificial intelligence (AI) stocks. Tech companiess and AI-related stocks make up about 45% of the S&P 500 index (SNPINDEX: ^GSPC).
Goldman Sachs research found that as of September, about half of earnings per share (EPS) growth in the S&P 500 during 2026 has come from corporate investment related to AI, such as the build-out of data centers. But is the stock market betting too much on AI?
Missed AI’s “Act 1”? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
Some prominent analysts and economists have warned that AI companies’ hundreds of billions of dollars in investments in semiconductors, memory chips, and data center construction are too expensive and might not pay off for investors. If you fear an AI stock crash and bear market in 2027, what should you do? Sell stocks? Diversify into bonds? Buy different sectors of the stock market?
The best answer might be: Do nothing. Even if you fear that AI is overhyped. Even if you worry that the S&P 500 is overvalued and that AI stocks have further to fall. Even if you think the S&P 500 is about to crash.
Why? Because you might be wrong. Long-term investors need to stay humble about their own ability to anticipate the future, while staying quietly confident about the ability of the stock market.
Do nothing. Hold on to your investments for five years or more and ride out the volatility. Staying invested in a broadly diversified portfolio of stocks, like an S&P 500 ETF, is often the best move even when markets are in turmoil.
Let’s look at the best investing move before a bear market.
The future is unwritten
It’s good to have a healthy sense of risk management when you’re making decisions about buying stocks. Stocks can be risky. Not every exciting new technology delivers the hoped-for profitability or drives wider economic gains.
Here’s the problem: No one knows what will happen next with AI stocks or the broader stock market. Yes, if the AI sector is overpriced and overhyped and investors turn away from tech stocks, this could cause a stock market plunge. But AI hyperscalers might also report encouraging new earnings growth or other good news that keeps the AI theme going for a few more years.
The future of the AI economy might be better than people expect today. Or different problems might emerge that no one is paying attention to yet. Or some new investment theme could emerge that gets investors excited again if AI disappoints. Even if you knew exactly what’s going to happen next in the economy or in global events, no one knows for sure how the stock market would react to that news.
The S&P 500 could go into a correction (10% decline) but not a full-blown bear market (20% decline). It could go down more than it did in 2022, but less than it did in 2008. Or the AI boom could come to an end, but gradually — while investors rotate money into totally different sectors and stocks. There could be a slow deflation of the bubble instead of a 2000-style bust.
The stock market is an endless cycle of optimism, greed, exuberance, panic, gloom, and pessimism. There are booms and busts, and then investors dust themselves off and start again. So far, the S&P 500 has always bounced back — even during times of greater danger and doubt than we face today.
How to invest for a possible stock market crash in 2027?
If you have a lot of money invested in just a few volatile tech stocks, and you’re worried that those investments won’t pay off or you want to take some of that money off the table, that’s fine. But the best time to do that is before a big tech sell-off. (And no one knows when that might be.) If you’re losing sleep about AI stocks, you might want to diversify beyond the tech sector or exchange-traded funds (ETFs) that track the tech-heavy Nasdaq-100 index.
Many investors might want to hold on and just keep investing in a broad stock market index fund like the Vanguard S&P 500 ETF (NYSEMKT: VOO). During the past five years, this low-cost index fund has delivered annualized returns of about 12% — despite going through an 18.2% decline in 2022. Even with one bad year out of five, the market can keep chugging along.
The future of AI might be fine. Even if there is a stock market bust, you won’t want to miss out on the gains that you could earn before the sell-off starts. And even if there is a bad bear market in 2027, it’s important to remember that the stock market is resilient. The S&P 500 has delivered annualized returns of 9.98% for the past 98 years, despite booms, busts, conflicts, crashes, and world-shaking events along the way.
Should you buy stock in Vanguard S&P 500 ETF right now?
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Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
