Wall Street's Biggest Bubble Looks Ready to Burst, and I Don't Mean AI or Quantum Computing

Last month, Wall Street and investors celebrated the fourth anniversary of the current bull market. Both the benchmark S&P 500 (SNPINDEX:^GSPC) and growth-fueled Nasdaq Composite (NASDAQINDEX:^IXIC) have more than doubled from their 2022 bear market lows, while the iconic Dow Jones Industrial Average (DJINDICES:^DJI) has rallied as much as 90%.

A confluence of factors has propelled Wall Street's major stock indexes to new heights, no two of which are larger than the evolution of artificial intelligence (AI) and the advent and early-stage proliferation of quantum computing. Both are trillion-dollar addressable opportunities that investors simply don't want to miss.

Image source: Getty Images.

But following the stock market's parabolic climb, concerns are mounting about a possible AI and/or quantum computing bubble-bursting event. While history hasn't exactly been kind to next-big-thing technologies -- every game-changing technology has endured an early-innings bubble-bursting event since the mid-1990s -- there's an even more prominent bubble that looks ready to burst, based on what history tells us.

This $1.5 trillion bubble can upend the stock market's AI- and quantum computing-driven rally

While history shows that the AI and quantum computing bubbles should eventually burst, the $1.5 trillion outstanding margin debt bubble may be the spark that upends the stock market's four-year rally.

"Margin" is money an investor borrows from their broker, with interest, to wager against (short-sell) or purchase securities. When margin is used to buy stocks or exchange-traded funds (ETFs), it represents a form of leverage.

Using margin can be risky. If an investor's wager moves in the desired direction, they can quickly amplify their gains. But if a stock or ETF moves in the opposite direction, losses can be quickly magnified. This dynamic makes outstanding margin debt a somewhat crude, yet intriguing measure of investors' willingness to take risks.

Total Margin Debt hits $1.5 Trillion, a new all-time high 🤯 👀 https://t.co/1IXqZGgrqs

— Barchart (@Barchart) July 20, 2026

According to FINRA, outstanding margin debt rocketed to an all-time high of $1.502 trillion in June. Although margin debt is expected to steadily increase over time in lockstep with the overall value of the stock market, bad things often happen when the amount investors borrow from their brokers rises dramatically over a short time frame.

Over roughly three decades, there have been four instances in which outstanding margin debt has climbed by at least 65% over a reasonably short timeline (12 to 19 months), including the present. The previous three occurrences all coincided with substantial bear markets:

• March 1999 to March 2000: In the 12 months leading up to the official bursting of the dot-com bubble, outstanding margin debt rose 80% and came within a whisker of reaching $300 billion. Once the internet frenzy faded, the S&P 500 and Nasdaq Composite lost 49% and 78% of their respective values by October 2002.
• June 2006 to July 2007: Margin debt soared yet again in the 13 months that immediately preceded the start of the financial crisis. According to FINRA, margin debt jumped 66% to more than $416 billion. During the height of the financial crisis, the benchmark S&P 500 lost 57% of its value.
• March 2020 to October 2021: The third time we witnessed a rapid surge in margin debt was in the 19 months after the COVID-19 crash. Fiscal stimulus lit a fire under investors' willingness to take risks, pumping up outstanding margin debt by 95% to a then-record of almost $936 billion. Three months after this peak, the 2022 bear market took shape, eventually wiping away a fifth, a quarter, and a third of the Dow's, S&P 500's, and Nasdaq's respective values.
• April 2025 to June 2026: Over this 14-month stretch, the evolution of AI and the arrival of quantum computing have pushed margin debt up by 77% to the aforementioned all-time high of $1.502 trillion.

History makes it crystal clear that outsize risk-taking is the ultimate red flag on Wall Street. While margin debt can't tell us when the music will stop or what catalysts could cause the stock market to sink, it clearly shows the unsustainability of excess risk-taking, which is doubly problematic in a historically expensive stock market.

Image source: Getty Images.

Patient investors can thrive, even amid a bubble-bursting event

From a historical standpoint, the short-term outlook for Wall Street's AI- and quantum computing-driven rally isn't pretty. If history rhymes once more, investors can expect a sharp bear market downturn in the presumed not-too-distant future.

While deep red arrows are known to tug on investors' heartstrings, significant pullbacks in Wall Street's major stock indexes can also represent generational buying opportunities for optimistic, long-term investors.

Despite most investors disliking stock market corrections and bear markets, these events are a natural and healthy part of the investing cycle. Given that downturns are commonly driven by emotions, there's not much that can be done from a monetary or fiscal policy perspective to prevent double-digit declines from occurring.

The silver lining for investors is that bull and bear market cycles aren't linear.

A May 2026 post on X (formerly Twitter) from Bespoke Investment Group examined every S&P 500 bull and bear market since the start of the Great Depression in September 1929. What researchers found was a mile-wide gap between bull and bear markets.

The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: https://t.co/4mGsS2t2ft

— Bespoke (@bespokeinvest) May 30, 2026

On one hand, the typical S&P 500 bear market found its trough after an average of 286 calendar days (roughly 9.5 months). By comparison, the average S&P 500 bull market persisted for 1,023 calendar days, or approximately 3.6 times as long as the average bear market.

More than a century of backward-looking S&P 500 total return data from Crestmont Research provides even more for patient investors to cheer about.

Analysts at Crestmont calculated the rolling 20-year total returns, including dividends, of the S&P 500 since 1900. This meant tracking its components in other major indexes prior to the S&P's official inception in 1923.

Crestmont's analysis yielded 107 rolling 20-year periods (1900-1919, 1901-1920, and so on, through 2006-2025), all of which produced a positive average annual total return. I repeat, 107 of 107 rolling 20-year periods generated a profit, including dividends.

Even if someone hypothetically invested at a stock market peak, or during a recession, depression, war, pandemic, etc., they would have always made money if they held an S&P 500-tracking index for 20 years.

Patience is a virtue and a path to potential riches on Wall Street. If the $1.5 trillion margin debt bubble bursts, consider it an opportunity to pounce.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.