Warren Buffett Is Sending Shockwaves Through Wall Street With This Warning. Here’s What History Says May Happen Next.

Investors always listen closely to comments from Warren Buffett -- and for good reason. The billionaire spent six decades at the helm of Berkshire Hathaway, and there, he drove market-beating gains. He helped Berkshire Hathaway deliver an average annual return of more than 19%, compared with the S&P 500's 10% over that period.

That's concrete proof of Buffett's clear understanding of the market, and investors, realizing this, aim to benefit from his wisdom. Buffett has been generous when it comes to sharing his thoughts on investing and secrets to success, and he's done this through his letters to shareholders, talks at events, and press interviews.

Today, Buffett no longer leads Berkshire Hathaway's investing decisions. He recently retired and now holds the position of chairman emeritus and a spot on the board of directors. However, Buffett remains involved in the Berkshire Hathaway investment process and also continues to share his thoughts with the public.

In fact, Buffett is sending shockwaves through Wall Street with the following warning, and history says this may happen next.

Image source: The Motley Fool. Image source: The Motley Fool.

A 78% gain over three years

First, let's consider the S&P 500's path so far in 2026, after completing a 78% gain over three years. As the artificial intelligence (AI) boom gained momentum, investors turned to stocks operating in this space -- and since many are tech giants, heavily weighted in the S&P 500, they helped push the index significantly higher. Meanwhile, against the backdrop of interest rate cuts in 2024 and 2025, investors also favored other growth stocks, as they benefit in such environments.

This year, the S&P 500 has pulled back on occasion as investors worried about several headwinds, from rising inflation to the possibility that the AI revenue opportunity wouldn't be as significant as expected. Still, declines have been short-lived, and the index has continued to march higher, even closing at a record this week. And certain AI stocks have delivered mind-boggling gains -- for example, AI memory providers Sandisk Corp. and Micron Technology have climbed more than 600% and 200%, respectively, since the start of January.

Now, let's consider the Warren Buffett warning that's sending shockwaves through Wall Street. Speaking with CNBC during the Berkshire Hathaway shareholders' meeting in May, Buffett expressed concern about a high level of "gambling" in the stock market.

"We've never had people in a more gambling mood than now," he said, referring to the preference for betting to score a fast gain rather than investing for the long term.

Stocks have become expensive

At the same time, valuations have climbed to high levels, as we can see through the S&P 500 Shiller CAPE ratio. It considers stock price and earnings per share over 10 years to account for fluctuations in the economic environment.

S&P 500 Shiller CAPE Ratio data by YCharts

As we can see, the last time valuations reached -- and surpassed -- such levels was prior to the dot-com crash. So, history suggests that, following this period of "gambling," and with stocks at expensive levels, the next move could be a decline in stock prices — even if it's not a long-lasting movement or a crash, stocks could be heading for a pullback from today's levels.

What does this mean for you as an investor? Buffett's warning doesn't signal that investors should stop buying stocks. The billionaire has invested throughout market environments and has never lost faith in quality companies. Instead, this comment from Buffett shows us that some market activity -- the quest for quick gains -- may present a risk. And against this backdrop, it's important to refrain from getting caught up in that movement.

Instead, it's essential to stick to strong investing principles, as Buffett does, and continue to look for quality stocks that trade at reasonable valuations and hold onto them for the long term. By doing so, even if the gambling Buffett notes in the market leads to declines, you still will be well-positioned to win over time.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Micron Technology. The Motley Fool has a disclosure policy.