"It's Gambling": Warren Buffett Just Issued a Blunt Warning to Investors -- and History Says He's Right.

The S&P 500 (SNPINDEX: ^GSPC), Nasdaq Composite (NASDAQINDEX: ^IXIC), and Dow Jones Industrial Average (DJINDICES: ^DJI) have been breaking record after record over the past year, but there's at least one investor who is being cautious right now.

Warren Buffett expressed concern over the stock market in a recent interview with CNBC during Berkshire Hathaway's annual meeting, even going so far as to say that some investors are "gambling" right now.

While even renowned investors like Buffett can't predict the future, decades worth of history suggest that he's spot-on. Here's his best advice for what investors should do right now.

A closeup shot of Warren Buffett at an event. Image source: The Motley Fool.

Many investors are taking unnecessary risks

During the interview, Buffett reiterated his idea that the stock market is like a church with a casino attached -- one representing slow-and-steady growth and the other, short-term risk-taking. "The casino has gotten very attractive to people," he noted, adding, "that's not investing, it's not speculating, it's gambling."

This advice is perhaps more important than ever, as the artificial intelligence (AI) boom has led to soaring company valuations. Many investors are eager to buy into the new wave of tech, and while some stocks can lead to life-changing wealth, not all companies will thrive over time.

We don't need to look too far into the past to see the potential consequences, either. In the late 1990s, hundreds of internet companies raised staggering amounts of capital during their initial public offerings (IPOs). When the bubble popped, however, many of them quickly burned through cash and couldn't survive the following bear market.

^IXIC data by YCharts.

During the dot-com bear market, the Nasdaq lost nearly 80% of its value, and many individual companies fared even worse. To be clear, this doesn't necessarily mean that we're in an AI bubble that will mirror the dot-com bubble. But it's easy for many investors to get caught up in surging stock prices and buy into companies with less-than-healthy fundamentals.

The best move investors can make right now

During the interview, Buffett also noted that, despite many investors taking on more risk than necessary, "that doesn't mean that investing is terrible. It does mean that prices for an awful lot of things will look very silly."

With enough hype, even the weakest companies can thrive in the near term. But if a stock is overvalued -- meaning its stock price no longer aligns with its underlying fundamentals -- it's more likely to crash harder during the next bear market or recession.

When the market is booming, it's tempting to invest in popular stocks to ride the wave of growth. The best investments, however, aren't always the flashy ones. By investing in quality companies with strong business fundamentals, your portfolio is far more likely to thrive over time.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.