Is the AI Bubble Bursting? Warren Buffett Warns ‘As Happens in Wall Street All Too Often, What the Wise Do in the Beginning, Fools Do in the End’
Warren Buffett, the chairman and CEO of Berkshire Hathaway (BRK.A) (BRK.B), has become as well known for his memorable turns of phrase as for his investment track record. His words often blend humor, pragmatism, and timeless lessons for investors.
The topic of financial bubbles and speculation remains evergreen, following a relatively straightforward and almost predictable path. While nobody ever knows when the next bubble will burst or how harshly, rampant speculation and overvaluations cannot continue forever. The money will dry up, and selling will ensue. After that, panic sets in as the earliest investors offload their gains onto the unsuspecting.
Buffett highlighted this observation, along with the tendency of markets to transform sound strategies into reckless ones when widely imitated, in his 1989 letter to Berkshire Hathaway shareholders: “But as happens in Wall Street all too often, what the wise do in the beginning, fools do in the end.”
The remark reflects a recurring pattern in financial history where investment ideas initially applied with discipline and prudence become distorted once they gain popularity. What starts as an intelligent approach to value, risk, or innovation can devolve into speculation when bandwagon followers rush in without the same rigor or understanding. Buffett’s authority on this subject stems not only from decades of experience but also from his careful study of past bubbles and crashes, ranging from the Great Depression to the dot-com collapse and the 2008 financial crisis.
The principle he highlights can be seen in countless episodes. For instance, mortgage-backed securities were once considered sound instruments to spread risk across the financial system. Initially, these products were designed with safeguards and managed conservatively. Over time, however, they grew increasingly complex and were used recklessly, contributing to the global financial crisis. Similarly, internet stocks in the late 1990s offered genuine promise in their early stages, but speculative excesses turned wisdom into folly by the end of the decade.
Buffett’s observation also speaks to human psychology in markets. Investors, driven by fear of missing out, often adopt strategies only after they appear successful. By then, the underlying opportunity may already be priced in, leaving latecomers exposed when conditions shift. In this way, what begins as a rational idea — whether investing in technology, housing, or cryptocurrencies — can spiral into unsustainable enthusiasm.
The credibility of Buffett’s statement lies in both his longevity and his discipline. Having managed Berkshire Hathaway since the mid-1960s, he has maintained a steady approach rooted in value investing. Buffett has repeatedly emphasized the dangers of chasing trends and the importance of staying grounded in fundamentals. His success has provided living proof that patience, caution, and independent thinking are essential for long-term wealth creation.
In today’s markets, Buffett’s words resonate amid rapid technological change, rising interest in artificial intelligence, and waves of retail participation through digital platforms. These trends, while promising in many respects, also carry the potential for speculation when enthusiasm overtakes careful analysis. The lesson is not to avoid innovation or opportunity, but to recognize the difference between wisdom at the start of a trend and folly at its peak.
Many have speculated on an ongoing bubble within artificial intelligence, as well as the inevitability of it bursting. Trillions are being pumped into AI, but so far the payoff has been relatively minimal. Even some studies conducted have shown minimal adoption, with the biggest markets simply being B2C subscriptions for leisure and convenience. This same cycle could certainly be taking place right now, with the biggest names building into AI. But with the cycle certainly charging to an inevitable climax, they could end up those same “fools” that Buffett referenced many years ago. Many continue to speak out about the continued similarities between AI and the dot-com bubble.
Ultimately, Buffett’s remark is a reminder that markets are shaped as much by human behavior as by financial models. Investors who heed his warning may find themselves better prepared to distinguish between opportunities that reward discipline and fads that punish excess. On Wall Street, history has shown again and again that the line between wisdom and folly is often defined by timing, temperament, and restraint.
On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com