U.S. investors now owe a record $1.18 trillion on margin accounts as of October, up $58 billion in just one month. That debt is growing more than twice as fast as the market itself, a pattern last seen before the 1929, 2000 and 2008 crashes.The Signal Behind Today’s SelloffThe Dow dropped 557 points, the S&P 500 fell 1.2%, and the Nasdaq slipped 0.8%, pushing major indexes to one-month lows. While Nvidia’s Wednesday earnings report draws attention, the main concern is the amount of borrowed money now supporting stock positions.Margin debt, the money investors borrow from brokers to buy securities, hit $1.18 trillion in October (the latest FINRA data available), surging from $1.13 trillion in September. Over the past year, it jumped 45.2%, while the S&P 500 rose approximately 19%. That’s a divergence of 2.4x, meaning borrowed money is growing more than twice as fast as the underlying market.That gap between debt growth and market gains has appeared only a few times in modern history: just before 1929, around the March 2000 peak, and ahead of the 2008 crisis.Institutions are already reacting. Fund managers sold $42.93 billion in stocks during October, bringing year-to-date net institutional selling to $332.17 billion. Hedge funds cut $12.88 billion in October, and the first week of November saw the biggest net selling of tech names in two years.At the same time, the VIX volatility index, often called Wall Street’s "fear gauge", moved above 23. Readings above 20 usually point to higher short-term volatility. Once the VIX pushes into the low 20s and stays there, forced selling on margin becomes more likely. Tuesday’s selloff accelerated after Rothschild & Co downgraded both Amazon and Microsoft from buy to neutral, hitting two Magnificent Seven stocks at once and triggering algorithm-driven selling.Margin debt is currently growing at 38.5% year-over-year while the S&P 500 has gained just 17.6%—a divergence of 2.2x. Historical data shows that when leverage grows significantly faster than market values, major corrections typically follow within 12-24 monthsThe Margin Debt PatternHigh margin balances on their own are not always a problem. The issue comes when borrowing grows much faster than underlying asset prices.Today, margin debt equals about 3.6% of U.S. GDP, approaching the 3.97% record set in October 2021. For comparison:Dot-com peak (2000): margin debt around 2.6% of GDPPre-crisis peak (2007): about 2.5% of GDPOn an inflation-adjusted basis, margin debt is now 6.7 times higher than 1929 levels.When markets are rising, borrowed money boosts returns. When prices fall, the same borrowing works in reverse. If an account’s equity drops below the broker’s maintenance requirement, the investor gets a margin call and must either add cash or sell positions.If enough investors cannot meet those calls, brokers start liquidating positions. That selling pushes prices lower, which triggers more calls for other investors. The cycle can feed on itself.With margin debt growing at more than twice the pace of the S&P 500, the system is more exposed to this kind of forced unwind than it has been in years.Margin debt has reached $1.13 trillion (3.5% of GDP), exceeding the levels seen before both the 2000 dot-com crash and 2008 financial crisis, when margin debt peaked at 2.8% and 2.6% of GDP respectivelyThe AI Debt Layer on TopThere is another layer of risk on top of this.Retail investors have used margin to chase AI leaders. Many of those same companies are also taking on large amounts of debt to fund data centers and chip orders.Hyperscalers such as Amazon, Microsoft, Meta, and Google have issued about $121 billion in debt this year, compared with $28 billion in 2024. Amazon alone raised $15 billion on Monday. Oracle is expected to spend so much on capital expenditures in 2026 that the total will exceed its operating cash flow by at least 40%.Big Tech’s combined AI capital spending is now projected to reach $405 billion in 2025, with Goldman Sachs estimating about $1.15 trillion from 2025 to 2027. For the first time in roughly 20 years, global fund managers in survey data are warning that large companies may be "overinvesting".That means two kinds of borrowing are stacked together:Investors using margin in their own accountsCompanies they own using debt to fund an AI buildout with still-uncertain payoffsIf AI revenue growth slows or earnings disappoint, both layers can come under pressure at once.Where Nvidia Fits InNvidia sits at the center of the current AI story. The company reports third-quarter earnings after Wednesday’s close.Analysts expect about $54.9 billion in revenue, up more than 56% from a year earlier, and earnings per share of roughly $1.25, up about 54%. Many on the Street want to see revenue closer to $55 to $56 billion and fourth-quarter guidance above $60 billion to stay confident in the AI spending path.Options prices imply a move of around 7 to 8% following the report, in line with Nvidia’s typical post-earnings swings.If Nvidia beats and raises guidance, the market can get some breathing room. If it merely meets expectations, or if management sounds cautious on AI orders or data center demand, the stock could drop sharply. With so much margin tied to tech and AI trades, that could trigger forced selling beyond Nvidia itself.In a market sitting on record margin debt, even a single disappointment from Nvidia wouldn’t just hit one stock: it could be the catalyst that turns a routine pullback into a margin-driven cascade.What Investors Should Watch and DoFor retail investors, the key questions right now are simple: how much borrowed money are you using, and how exposed are you to crowded AI and tech trades?Here are practical steps to consider.1. Check your margin useLog in to your brokerage account and look at total margin debt versus your portfolio value.As a rough guide:Under 20%: generally safer20 to 30%: caution zoneAbove 30%: high risk in a volatile marketIf you are above 25 to 30%, you are vulnerable to a sudden drop in one or two large positions.2. Cut back before the margin callIf you are heavily on margin, consider trimming positions now, while you can choose what to sell. Maintaining extra equity above your broker’s requirement is far better than being forced to liquidate during a gap down.3. Watch the VIX and Nvidia togetherSet alerts for the VIX above 25. If it moves toward 30, margin-related selling is likely picking up. Combine that with Nvidia’s earnings reaction. A weak report plus a spike in volatility is a warning that forced selling may be spreading.4. Balance concentrated tech exposureMany professional investors have already rotated part of their portfolios into more defensive areas. The Health Care Select Sector SPDR (XLV), for example, has gained 9.75% since the end of September and has outperformed the S&P 500 by nearly 9 percentage points over that span.Healthcare, consumer staples, and utilities have historically held up better than high-beta tech stocks when markets become stressed. They can still fall, but the swings tend to be smaller.The Bottom LineThis drop is not just about one earnings report. It is about record margin debt growing far faster than stock prices, stacked on top of a huge, debt-funded AI investment cycle.Institutions have already pulled more than $300 billion from equities this year. The VIX is no longer calm. Nvidia’s next report will help decide whether this remains a manageable shakeout or turns into a more painful reset.If you are using margin, you do not need to predict which outcome will happen. You only need to make sure a single bad week in AI and tech does not force your broker to choose which positions you sell.***Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Margin trading involves significant risk of loss and is not suitable for all investors. Always consult with a qualified financial advisor before making investment decisions. Past performance of margin debt levels and market crashes does not guarantee future results.