Is 2026 going to be the year the AI “bubble” finally bursts?
Maybe my use of quotes there tipped you off to my true opinion: Worries about an AI bubble are vastly overdone.
And today we’re going to grab a 10.6%-paying closed-end fund (CEF) that wins either way: If I’m wrong and there is an AI bubble (that pops), cash will flow into it. If not, that’s fine: We’ll happily collect its growing 10.6% payout.
From Silicon Valley to Wall Street
Of course, the AI CEOs agree with me that there is no AI bubble: Sam Altman, Elon Musk and the heads of Microsoft (MSFT), Meta Platforms (META), Alphabet (GOOGL) and Oracle (ORCL) are all bullish and willing to spend trillions on the tech.
But another group also agrees that AI-bubble fears are overdone: a cadre of hedge funds and institutional investors that regularly hold tech titans like Musk, Zuckerberg and friends accountable—and know the “plumbing” of the tech world even better than the billionaire set does.
You can see what I’m talking about here in the fight between Elon Musk and institutional investors over the latter group short-selling stocks like Tesla (TSLA). Musk has complained about this repeatedly, but this short selling does give companies an incentive to do better, so their stocks don’t end up shorted. A kind of accountability emerges as a result.
Coatue and the Tech Hedge Fund World
All of this brings me to Coatue Management. It’s a tech hedge fund that began during the dot-com bubble and not only survived but grew from $45 million in assets at its launch to about $70 billion today.
Over that time, Coatue has shorted many tech stocks, so it has experience in keeping corporate managers from getting tied up in indulgent behaviors that lose money for investors. Coatue also has plenty of experience with bubbles.
So when Coatue dismisses talk of an AI bubble, we should listen. And that’s exactly what it did late last month, when it posted this chart:
Here we see that over the last three years, there has been surprisingly little growth in the amount of money invested in corporate bonds issued to fund the tech, media and telecom sectors. (That’s the “TMT” in the title—those are the companies like Google, Microsoft, Meta and Oracle.)
The 0%, 3% and 9% gain in total debt issuances from 2023 to 2025 in these sectors suggest the bond market is not overly exposed to AI, and that there’s still a lot of room for debt to grow. Also, the comparison with the dot-com boom’s surging debt growth (on the left side of the chart) tells us the current situation is likely not a bubble—at least not yet.
To be sure, private debt and creative financing of some AI projects means a lot of AI borrowing isn’t shown on this chart. But that was also true of the dot-com era. And estimates of both again show we’re far from a bubble today.
But even if we were, the fact remains that corporate bonds are not overly exposed to AI. Moreover, bond holders tend to demand more discipline around costs.
The AI Hedge Move
If the corporate-bond market isn’t overly exposed to AI, then any volatility prompted by AI-bubble worries will likely drive cash from stocks to corporate bonds. That makes the corporate-bond market the perfect hedge for anyone worried about a selloff.
There’s just one thing: AI bubble fears are fading and have been since they peaked in November, at least according to internet search traffic.
AI Bubble Fears on the Backburner—for Now
I know what you’re thinking. “Markets are calm. AI bubble fears are fading, so why worry about this now?” The low fear means the market is not pricing in the potential of investors looking to hedge against AI in the future. That’s left corporate bonds cheaper than they should be.
In other words, we can buy into bonds now that the market isn’t hedging, wait for any stock volatility to boost demand for said bonds, then sell those bonds to investors.
Take a look at this chart.
Bond CEF Underperformance Highlights Our Opportunity
Source: CEF Insider
I started 2025 bullish on corporate bond CEFs until September, when we sold three of these funds from our CEF Insider portfolio.
The reason is in the chart above: September was when CEF Insider’s corporate-bond-fund subindex (in black) began lagging its equity-fund subindex (in brown). So CEF Insider focused more on equity funds, which have outperformed since.
Now that bond funds are on sale, and stand to gain on any short-term worries over an AI bubble, it’s time to cycle back to some of them. But how? Through a CEF, of course!
Buying corporate bonds individually is difficult, and bond ETFs typically underperform. But a CEF like the BlackRock Corporate High Yield Fund (HYT) is a great way to buy in, both now and over the next few weeks.
HYT Clobbers Its Benchmark
HYT yields 10.6% today and has raised its payout around 11% in the last decade. That’s in contrast to the corporate-bond benchmark SPDR Bloomberg High Yield Bond ETF (JNK), which has actually seen payouts fall a bit. Even better, HYT (in purple above) has outperformed JNK (in orange).
An even better reason to buy HYT is that today’s low bond demand means the CEF is especially cheap:
A Sudden Discount Appears
In the last six months, HYT’s discount to net asset value (NAV) has dropped to levels not seen since 2022 and 2023, after a long period of trading around par. This is an opportunity for us, putting short-term upside on the table if the fund’s discount evaporates again, like it did at the end of 2023.
With that in mind, buying HYT now is a solid value play, with demand for a hedge against an AI bubble waiting in the wings. And then, of course, there’s the 10.6% dividend.
HYT Is Just the Start. Here Are My Top “AI Bubble” Plays (Yielding up to 8.7%)
The bond market is far from the only place we’re investing to play overhyped fears of an AI bubble.
Another place? AI stocks themselves! But of course, careful contrarians we are, we’re taking two key precautions to safeguard the gains (and dividends) we get from these plays:
- We’re buying AI stocks throwing off huge dividends (yes, up to 8.7%!).
- We’re buying these stocks at deep discounts, cutting our risk as we collect their huge payouts.
I know, I know. The big-name AI stocks are all pricey now, and offer low (or no) dividends. So how are we going to pull this off?
Through CEFs, of course! I’m pounding the table on 5 CEFs holding shares of companies that not only provide AI, but those that stand to gain the most by using it, too.
The time to buy these 5 high-yielding CEFs is now. Click here and I’ll tell you more about them and give you a free Special Report revealing their names and tickers.