There have been a lot of headlines over the last few weeks on the topic of whether or not AI is in a bubble akin to the dotcom bubble of the ‘90s. I’ve been fairly vocal in my opinion that it is (it’s something we’ve been talking about in our Street Check podcast for some time and touched on in the latest episode).
And that opinion has only been reinforced by the widespread circular funding deals we’ve seen from OpenAI and Nvidia (NVDA), wherein companies agree to deals in the 10s or 100s of billions of dollars to build data centers at some future point, or buy data center capacity, or lease GPUs for use in the data centers that will be built in the future to meet demand that’s also coming some time in the future.
This image from Bloomberg sums it up nicely.
What’s often overlooked (or at least undiscussed), however, is what exactly you can do about it.
We’ll look at a couple of defensive stocks shortly that can help you “bubble-proof” your portfolio, but I wanted to touch a bit more on the challenges facing investors.
It’s all well and good to identify a bubble, but the trouble with identifying it is that there’s no clear way to predict when it could pop. If there were, investors would have simply avoided the fallout of the dotcom bubble (and all the other bubbles throughout history).
If you’re a passive investor, huge chunks of your core equity holdings are already invested in big tech stocks. If you invest in any market-cap-weighted ETFs, it’s unavoidable.
You also shouldn’t throw out a perfectly good long-term investing strategy simply because some segment of the market is overpriced. Some segment of the market is always overpriced.
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One thing you can do is tactically pare back exposure to the most inflated names, reducing your holdings in tech stocks, for instance. The risk there is that you’ll miss out on further gains.
You can also increase your exposure to uncorrelated assets (gold is a popular choice these days).
My advice is to try and maintain your overall level of equity investment but to target some companies that can serve as a portfolio buffer should the AI bubble pop.
To that end, investors should consider stocks that have little exposure to (or reliance on) AI, will hold up reasonably well in a downturn (AI has been the only source of economic growth this year; GDP would have grown only 0.1% in the first half of 2025 without data center spending), and offer a dividend to help bolster returns should stocks stagnate.
Two stocks that fit that description are Johnson & Johnson (JNJ) and Coca-Cola (KO). Neither is glamorous. Neither will lead the next hype cycle. But both are remarkably well-positioned to survive, and even thrive, if the AI euphoria fades.
If the bubble pops, nothing is truly bubble-proof, as the baby is frequently thrown out with the proverbial bathwater, but defensive stocks are as close to bubble-proof as you can get while maintaining your general asset allocation targets.
Johnson & Johnson: Durable Health in an Uncertain Market
Johnson & Johnson has been a cornerstone of defensive investing for decades. What makes it interesting right now is precisely that it doesn’t depend on the AI revolution for its future. J&J operates across three pillars — pharmaceuticals, medical devices, and consumer health — and each serves needs that don’t go away just because tech valuations tumble.
Healthcare is one of those rare industries where demand is both non-cyclical and non-discretionary. People still get sick in recessions. Medical procedures still happen when investor sentiment sours. That steady need for treatment, coupled with a deep R&D pipeline, helps J&J generate reliable cash flow year after year.
It also has one of the strongest balance sheets in corporate America. The company’s steady margins, substantial free cash flow, and disciplined capital allocation make it resilient even in periods of market turbulence. Investors tend to rediscover J&J every time they remember what “defensive” actually means.
That’s not to say it’s bulletproof in the absolute sense. The company faces challenges familiar to any pharmaceutical giant: looming patent expirations, competition from biosimilars, and periodic legal overhangs such as the well-publicized talc litigation. Growth will be measured (the stock is up only 27% in the last five years), but a 2.8% dividend yield can help your portfolio bide its time if growth falls out of favor.
Coca-Cola: A Classic for a Reason
Coca-Cola is one of the most recognizable brands on the planet, and its portfolio has expanded to include more than just sugary, carbonated soft drinks. The company has 200 brands in its portfolio, 30 of which are billion-dollar brands, that run the gamut from plain bottled water to juices, sports drinks, seltzers and more.
Coca-Cola’s advantage is simple: an iconic global brand, unmatched distribution, and consistent consumer demand. Even when the economy tightens, people still reach for affordable indulgences — a can of Coke among them. The company’s ability to pass through modest price increases without losing customers gives it pricing power that many firms can only envy.
Interestingly, Coca-Cola does use artificial intelligence, but in a quiet, unglamorous way — to optimize logistics, forecast inventory, or fine-tune marketing campaigns. These are incremental efficiencies, not the kind of headline-grabbing “AI transformation” that sends valuations soaring. That’s precisely why the stock is relatively insulated: it benefits from technological progress without being valued like a tech stock.
The risks, as always, are grounded in the real world. Input costs can fluctuate, health-conscious trends can shift consumption toward alternatives, and new regulations on sugar content or packaging could nibble at margins. But those are long-term, manageable challenges for a company with deep experience in adapting to changing tastes; there’s a reason Warren Buffett has been a long-time shareholder.
The upshot of each of these companies is that they generate revenue in the real world, by selling things people actually need, at prices that generate steady returns, with little dependence on speculative future cash flows.
Their stocks won’t soar if AI continues to dominate, and that’s fine. Most investors have enough exposure to AI stocks already. But when a speculative bubble bursts, capital tends to flow back toward companies like these, seeking stability.
It’s worth remembering that “bubble-proof” is a relative term. If the market drops 30%, no stock is truly immune. But some can lose less, recover faster, and provide dividends while they do it. J&J and Coca-Cola fall into that camp. They’re not growth rockets, they’re ballast — the kind that keeps your portfolio from capsizing when sentiment shifts.
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