Zephyr's Adjusted for Risk: Examining the AI Bubble - Opportunities and Risks Ahead
AI drove much of 2025's market gains. The big question managers face now: is the surge durable, or are we crowding into a bubble?
On Zephyr's Adjusted for Risk Podcast, host Ryan Nauman digs into the 2026 outlook with guest Jim Besaw, CIO at GenTrust. Here are the takeaways managers can use to set expectations, manage exposure, and make cleaner allocation decisions.
Why this matters for management
Capital allocation, budget planning, and incentive design all tie back to a realistic view of market and currency risk. Concentration in a handful of AI leaders has raised both returns and vulnerability.
Your job isn't to predict the top. It's to capture opportunity while capping downside.
2026 market outlook in plain terms
Growth is skewed toward firms tied to AI buildout: semiconductors, compute, cloud infrastructure, and energy inputs. Breadth remains narrow, which boosts index returns but increases single-theme risk.
Rates are still restrictive relative to the past decade, so cash yields compete with risk assets. Expect more dispersion between winners and everyone else. Selectivity matters.
AI's impact on markets: concentration and second-order effects
Portfolios are heavy in a short list of AI names. That concentration delivers performance-until sentiment turns or earnings disappoint. The spillover is real: data centers lift utilities and specialized REITs; chip demand reshapes supply chains; software productivity trends pressure laggards.
As adoption moves from hype to deployment, productivity gains could sustain margins and capex, but leadership can rotate fast as the stack matures.
Managing AI exposure without dulling upside
- Define position bands: pre-commit where you trim and where you add to avoid emotional decisions.
- Use a barbell: pair high-growth AI leaders with quality cash generators and defensive cash flow.
- Balance index concentration: complement cap-weight exposure with equal-weight or factor sleeves (quality, profitability, low volatility).
- Stage rebalances quarterly or by threshold instead of all at once.
- Consider options overlays (collars or structured notes) for concentrated single-stock risk.
- Broaden the AI stack: semis, equipment, cloud, cybersecurity, data-center infrastructure, and the energy and materials that enable them.
- Keep dry powder: short-duration Treasuries leave room for opportunity without sitting idle.
Handling large capital gains
- Direct indexing for ongoing tax-loss harvesting and gradual factor tilts.
- Donate appreciated positions or use a donor-advised fund to offset gains.
- Spread sales across tax years with pre-set trade plans to reduce behavioral drift.
- Pair trims with losses elsewhere; be mindful of wash-sale rules.
US dollar dynamics to watch
A strong dollar pressures multinational earnings and foreign returns for unhedged portfolios. If the Fed stays tighter than peers, dollar strength can persist; any shift toward easing or softer inflation could flip that script.
If FX matters to your P&L, set a simple hedging policy and review it quarterly. Know what you'll do if the Dollar Index (DXY) moves 5-10% from here.
Innovations in wealth management
Expect more adoption of direct indexing, tax overlays, and advisor platforms that cut time spent on rebalancing, client reporting, and scenario testing. AI copilots can help with research synthesis and client communications-useful for teams managing complex books of business.
If your team is leveling up AI skills for practical workflows, these curated resources can help: AI courses by job and AI tools for finance.
Signals and risk markers to monitor in 2026
- Market breadth: equal-weight vs. cap-weight performance gap.
- Earnings revisions, especially for AI leaders and suppliers.
- Capex trends in chips, cloud, and data centers; utilization rates.
- Credit spreads and default rates in high yield.
- Valuation vs. growth: sales and free cash flow growth must outrun multiple expansion.
- Volatility term structure: complacency after a run-up is a tell.
- Dollar direction and policy divergence across central banks.
Episode guide
- 00:00 Introduction and Welcome
- 01:06 Guest Introduction: Jim Besaw
- 01:34 GenTrust Overview
- 02:26 2026 Market Outlook
- 07:06 AI's Impact on Markets
- 11:39 Managing AI Exposure and Risks
- 22:41 Innovations in Wealth Management
- 25:28 Final Thoughts and Conclusion
Listen and get the full discussion
Hear the full conversation with host Ryan Nauman and guest Jim Besaw on Zephyr's Adjusted for Risk Podcast. Share it with your leadership team, set your guardrails, and update your playbook for 2026.
Zephyr helps financial advisors build modern diversified portfolios. Learn more about GenTrust and its approach to risk, tools, and client outcomes.
Your membership also unlocks:
