Polymarket traders see a 10% chance the AI bubble bursts before New Year's Day

By Joseph Adinolfi

And a 20% chance it deflates before the second half of next year

Worries that the AI investment boom is metastasizing into a bubble persist.

For investors worried that the runaway artificial-intelligence trade might be about to hit the skids, prediction markets are already starting to reflect that anxiety.

On crypto-based platform Polymarket, traders are quietly increasing the implied probability of a full-blown AI-industry downturn before the end of the year, although expectations for a blowup are well below their earlier highs.

One Polymarket betting market has assigned a roughly 10% chance that the AI bubble will burst before New Year's Day, according to the latest numbers available on the platform.

Traders also see a 20% chance the bubble will deflate before July 2027.

Trading volume for the end-2026 market is nearing $2.5 million, a respectable figure on Polymarket, which hosts thousands of different prediction markets. While Polymarket recently launched a regulated U.S. venue, its main high-volume international crypto exchange remains off-limits to traders based in the U.S. - although there are workarounds, like using a VPN to mask one's location.

The market's organizers have outlined a handful of scenarios that would signal the collapse of an AI bubble. At least three would need to happen within a single 90-day period for the market to resolve to a "yes," delivering a payout to those who bet the bubble would collapse.

-- Nvidia NVDA: Closing price down 50% or more from its all-time high.

-- iShares Semiconductor ETF SOXX: Closing price down 40% or more from its record high.

-- Major hardware suppliers: A 50% drop from all-time highs in the price of Taiwan Semiconductor TSM, ASML ASML, Broadcom AVGO, Arista Networks ANET or Super Micro Computer SMCI.

-- Compute Pricing Collapse: Rental rates of Nvidia's H-100 GPUs drop to $1.00 an hour or lower for five consecutive days, according to SiliconData's Silicon Index.

-- Corporate Bankruptcy: OpenAI or Anthropic file for bankruptcy.

-- OpenAI Sale: OpenAI is acquired.

Polymarket didn't respond to a request for comment from MarketWatch.

The recent uptick in the perceived probability of a collapse has risen this week as yields on some bonds issued by CoreWeave, a so-called "neocloud" that buys Nvidia GPUs, have moved sharply higher as investors backed away from AI-linked debt.

Do Wall Street professionals expect the bubble to collapse? Some have started to warm to the idea that a bubble is forming and that it is a risk worth monitoring. Researchers at Yardeni Research have recently been tinkering with an "AI bubble meter" built using Claude. According to Ed Yardeni, founder of Yardeni Research, the meter is sending mixed signals. While the preconditions for a bubble are high, Yardeni's model hasn't detected any near-term risks that might trigger a collapse.

"The preconditions of a bubble are in place and have been for a while, but the forces that ended past booms are only partially present," Yardeni wrote in commentary shared with MarketWatch.

-Joseph Adinolfi

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10-21-26 1159ET