Warren Buffett sends shockwaves through Wall Street with this warning. Here’s what the story says could happen next.

Investors always listen carefully to Warren Buffett’s comments – and for good reason. The billionaire spent six decades at the helm of Berkshire Hathawayand there he made market-beating gains. It helped Berkshire Hathaway generate an average annual return of more than 19%, compared to 10% for the S&P 500 over that period.

This is concrete evidence of Buffett’s clear understanding of the market, and investors, realizing this, are seeking to benefit from his wisdom. Buffett has been generous when it comes to sharing his thoughts on investing and the secrets to success, and he has done so through his letters to shareholders, speaking at events, and interviews with the press.

Today, Buffett no longer directs Berkshire Hathaway’s investment decisions. He recently retired and now serves as Chairman Emeritus and serves on the Board of Directors. However, Buffett remains involved in Berkshire Hathaway’s investment process and also continues to share his thoughts with the public.

In fact, Buffett is sending shockwaves through Wall Street with the following warning, and history says it could happen next.

Image source: The Motley Fool. Image source: The Motley Fool.

A gain of 78% over three years

First, consider the S&P 500’s trajectory so far in 2026, having delivered a three-year gain of 78%. As the artificial intelligence (AI) boom gained momentum, investors flocked to stocks operating in this field – and since many are tech giants, heavily weighted in the S&P 500, they helped drive the index significantly higher. At the same time, against the backdrop of interest rate cuts in 2024 and 2025, investors have also favored other growth stocks as they benefit from such environments.

This year, the S&P 500 Index has declined several times as investors worry about several headwinds, from rising inflation to the possibility that AI revenue opportunities may not be as great as expected. Nonetheless, the declines were short-lived and the index continued to rise, even closing at a record this week. And some AI stocks have generated staggering gains – for example, AI memory providers. Sandisk Corp. And Micron technology have climbed more than 600% and 200% respectively since the beginning of January.

Now consider Warren Buffett’s warning that is sending shockwaves through Wall Street. Speaking to CNBC at Berkshire Hathaway’s shareholder meeting in May, Buffett expressed concern about the high level of “gambling” in the stock market.

“We’ve never had people as keen to gamble as we are today,” he said, referring to the preference for betting for a quick win rather than investing for the long term.

Stocks have become expensive

At the same time, valuations have reached high levels, as evidenced by the CAPE ratio of the S&P 500 Shiller. It takes into account the stock price and earnings per share over 10 years to account for fluctuations in the economic environment.

S&P 500 Shiller CAPE ratio data by YCharts

As we can see, the last time valuations reached – and exceeded – such levels was before the dot-com crash. So, history suggests that after this period of “play”, and with stocks at high levels, the next move could be a decline in stock prices – even if it is not a long-lasting move or crash, stocks could be headed for a pullback from current levels.

What does this mean for you as an investor? Buffett’s warning doesn’t mean investors should stop buying stocks. The billionaire has invested in all market environments and has never lost confidence in quality companies. Instead, this comment from Buffett shows us that some market activities – the quest for quick gains – can present risk. And in this context, it is important not to get caught up in this movement.

Instead, it’s essential to stick to sound investing principles, as Buffett does, and continue to seek out quality stocks that trade at reasonable valuations and hold them for the long term. By doing so, even if Buffett’s play notes in the market cause declines, you will still be well positioned to win over time.