As trade tensions cooled and the policy fog lifted, investors’ attention as we exited 2025 gravitated to a single question: Are we in the midst of an AI bubble?
To evaluate where we are in the cycle, we need to understand the anatomy of a bubble. We adapted Ray Dalio’s classic six-part 'Bubble Indicator' to diagnose the current landscape.
Our diagnosis? We see a few areas of concern in public markets—mainly around increasing use of leverage—but our bubble indicators are more mixed than alarming. We believe the bigger vulnerability sits in private markets, where valuations are harder to validate and outcomes are more sensitive to financing conditions.
.png)
The Outlook for 2026 – Turbulence Along The Way
We don’t think an AI bubble-pop is going to derail U.S.market performance in 2026. But there are areas we are watching closely and the ecosystem is fragile. We expect AI-driven leadership to continue this year, but with heightened volatility.
1) We expect AI investment and AI-led performance continue (with air pockets)
AI is still in an investment up-cycle: capex, model deployment, and enterprise adoption should keep advancing. But with the ecosystem changing rapidly, we may see “two steps forward, one step back” trading in 2026—periodic resets driven by guidance, competitive surprises, extended retail positioning or changes in public sentiment around AI. The theme can keep working even if the ride is bumpier.
2) Private markets look most vulnerable to bubble dynamics
We believe the highest bubble risk isn’t necessarily in liquid mega-cap equities—it’s in areas where:
- Price discovery is slower
- Financials are murkier
- Financing terms can change quickly
Private markets, including venture, growth equity, and private credit, seem particularly vulnerable to AI-related hiccups. If we see a few high-profile down rounds, a stalled fundraise, or stress in private credit tied to AI-adjacent assets, the reset could spill over into public markets—driving volatility even if the fundamentals of the public AI leaders remain intact.
3) Overbuilding risk rises as the cycle matures
History says that major infrastructure waves tend to be temporarily overbuilt. If investment accelerates faster than near-term monetization, markets can enter a “digestion” phase—where returns are delayed. That’s a volatility risk, not necessarily a secular thesis-break.
Read our 2026 investing playbook, where we break down how investors can maintain AI exposure while diversifying into other sectors.
Disclosures:
This communication contains forward-looking statements that reflect Range Advisory, LLC’s (“Range”) current views, expectations, beliefs and/or projections about future events or results. Forward-looking statements involve risks and uncertainties — including, without limitation, market conditions, regulatory changes, economic conditions — any of which could cause actual results to differ materially from those expressed or implied by such statements. Range undertakes no obligation to update or revise any forward-looking statements to reflect new information, future events or otherwise, except as required by law. Recipients should not place undue reliance on forward-looking statements, which are presented for informational purposes only and do not constitute investment advice or a recommendation to buy, hold, or sell any security. Past performance is not indicative of future results. The views, opinions and analyses expressed by Range in this material are those of Range as of the date shown, and are provided for informational purposes only.
.svg)
.svg)
.svg)
