Interesting question. The I-bonds currently yield 9.62% — but only have a guaranteed rate of 0% — yes ZERO.
The May and November adjustments reflect inflation figures — year over year — every 6 months. So if the Fed does get inflation under control, then you could get a very low yield over the 5 years long run that you must hold the I bonds. Plus when the children cash in the bonds, the money will be considered their asset — and have a big impact on their ability to qualify for financial aid (unless they wait until after college to cash them in).
On the other hand, I’m thinking that with such above-average performance of the stock market in recent years, the market might be ripe for a few flat or even negative years. No one knows for sure, of course!
So my suggestion is to conduct an experiment: Put HALF of your annual gifts in I-bonds, and the other half in a new 529 plan (you can open more than one (so if you have a Fidelity plan, open a vanguard plan!) and see what happens in 5 or 10 years. It will be an interesting lesson for them. And my guess is that if you hold for at least 10 years, the stock investment will outperform! But we will only know in hindsight!