Fifty-seven percent of investors say an AI downturn is the biggest market risk in 2026.
Vanguard research projects that bonds could be a better investment than stocks over the next few years.
To reduce AI downside risk, consider diversifying into value stocks, small-cap stocks, and high-quality bond ETFs.
10 Stocks We Like Better Than Vanguard Index Funds – Vanguard Value ETF ›
Investor enthusiasm for AI stocks has helped deliver big gains for US and international stock markets in 2025. But what happens if the AI party goes bankrupt this year? A possible downfall of AI is a priority for global investors. According to the German Bank In the 2026 Global Markets Survey, 57% of respondents believe the biggest risk to market stability this year is “falling technology valuations and waning enthusiasm for AI.”
Investors already seem to be worried about AI stocks. He Global X Technology and AI ETF(NASDAQ:AIQ) has gained 29% in the last year, surpassing the S&P 500 index, which has risen 13.6% in that time. But after hitting an all-time high of $53.75 on Nov. 3, this AI stock ETF quickly fell 11% on Nov. 21, and was still about 2% below its Jan. 22 high.
If you want to invest your money in a safer way to avoid some risks of a possible AI crash, here are some possible strategies.
Image source: Getty Images.
The S&P 500 index has become the heaviest with highly valued technology stocks. If you want to diversify your portfolio against the risks of an AI downturn, you might consider purchasing value exchange-traded funds (ETFs). He Vanguard Value ETF (NYSEMKT: VTV) gives you access to 312 stocks across a wide range of sectors, and only 7.8% of the portfolio are technology stocks.
The top five holdings in the Vanguard Value ETF are JPMorgan Chase,Berkshire Hathaway, ExxonMobil,Johnson & Johnson, and Walmart. None of these companies invest heavily in AI or consider themselves AI stocks. You can own this fund for an ultra-low expense ratio of 0.04%.
This ETF offers a 9.9% earnings growth rate and a price-to-earnings ratio of about 21. That’s less than the S&P 500 index’s P/E ratio of 31 and the Invesco QQQ Trust P/E ratio of 33.9.
Another way to reduce the risk of an AI stock crash is to buy small-cap stocks. Smaller companies typically have limited exposure to AI trading and are often valued at lower multiples compared to major tech stocks. Small-cap stock index funds could put your money to work in a different area of the market, away from the AI craze. And some of today’s small-cap stocks could become the fast-growing companies of the future.
One of the best small cap stock ETFs is the iShares Russell 2000 Growth ETF(NYSEMKT:IWO). This ETF includes 1,098 holdings in sectors such as healthcare (24.3% of the fund), industrials (23.8%), information technology (20.5%), financials (9.7%), consumer discretionary (7.9%), materials (3.8%), energy (3.1%) and more.
The iShares Russell 2000 Growth ETF charges a 0.24% expense ratio, which includes a management fee. And it trades at a P/E ratio of about 30, which is cheaper than the S&P 500 or the Nasdaq-100.
The Vanguard Economic and Market Outlook (VEMO) report for 2026 is bullish on bonds. Vanguard’s research team estimates that among public investments, high-quality U.S. fixed income has the strongest risk-return profile over the next five to ten years. VEMO research projects that high-quality US bonds will generate returns of around 4% over the next 10 years.
In case AI technology fails to deliver the expected productivity gains and AI stock mania turns into AI bust, investing in bond ETFs can be a good way to hedge your risks.
He Vanguard Total Bond Market ETF(NASDAQ:BND) allows you to own a wide range of investment grade US bonds, with a low-cost expense ratio of 0.03%. This ETF gives you access to over 11,000 government and corporate bonds, most of which have high credit quality. U.S. government bonds make up 69.3% of the fund’s holdings, and another 18.3% of its holdings have a credit rating of A or higher.
No one knows for sure what will happen to the stock market or the bond market in the future. There is no risk-free investment. The price of stock and bond ETFs can go up or down. But if you don’t want to invest too much in tech stocks and the rise of AI, these strategies could be a smart way to diversify your portfolio across a broader range of assets and reduce the risk of an AI crash.
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Ben Gran has positions in the Vanguard Total Bond Market ETF. The Motley Fool holds and recommends Vanguard Index Funds-Vanguard Value ETF and Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.
Fear of an AI downfall? These three safer plays could protect your portfolio. was originally published by The Motley Fool
