Not Your Grandfather’s Tech Bubble
We’ve seen an uptick lately in the back-and-forth among investors about whether we’re in an artificial-intelligence stock market bubble that harkens back to the dot-com era. For us, it’s not that clear. If we are in a bubble, it seems we might still be in the relatively early stages, with comparisons to 1999-2000 premature.
Let’s revisit the mood of the dot-com era:
- Wall Street was churning out hot initial public offerings (IPOs) that often saw triple-digit gains on the first day.
- Investors increasingly ignored prudence, valuing companies not on their earnings but on their sales. And then their “clicks.” And then their “eyeballs.”
- Workers joined unproven startups, forgoing steady cash compensation to chase lottery tickets via stock options that ended up worthless.
We don’t see much of that today.
The current debate often centers on comments about lofty stock-market valuations, particularly for large tech companies. Let’s compare valuations, with data from the exhibit.
Exhibit: P/Es of the S&P 500 and Constituents Over Time
Source: Standard & Poor’s, J.P. Morgan Asset Management, Clayton Wealth Partners. Data as of October 31, 2025.
The green line on the left panel shows the price-earnings ratio over time of the S&P 500’s 10 largest companies, which are dominated by large tech names. To be sure, the valuation of the top 10 is elevated today. But it remains meaningfully lower than the top 10’s valuation of the internet bubble.
Another big difference between then and now is the outsized impact today’s top 10 stocks have on the valuation of the entire S&P 500. That’s because today’s top 10 stocks account for more than 40% of the weight of the whole index, significantly higher than the weight back in 2000. There’s good reason for that: Collectively, they contribute a third of the index’s total earnings. (See the right panel of the exhibit.)
Unlike the dot-com’s highfliers, today’s large tech companies are good companies with real earnings, cash flow, and growth. They are incredibly profitable and benefit from real competitive advantages.
For us, the risk isn’t so much about price as it is in stock-market concentration. As the fortunes of the top 10 go, so will the S&P 500’s. And there are risks to the earnings of these names when the massive AI buildout (now accounting for about half of U.S. GDP growth) ends, which doesn’t appear to be soon. But that’s why we diversify, including investments in non-tech, international, small companies, and in most accounts, fixed income.
Bullish
- The Fed has restarted its rate-lowering campaign, providing relief for consumers and small businesses.
- The most attractive yields for fixed income and cash in years.
- Credit spreads remain contained.
- Consumer and corporate balance sheets generally remain healthy.
Bearish
- The data blackout from the government shutdown is clouding the near-term outlook.
- Trade policy uncertainty is having a negative effect on consumer and business confidence.
- Housing affordability remains at a decades-low.
- Jobs growth has slowed to a standstill.
- Delinquency rates on consumer loans are rising.
- Russia-Ukraine war and other geopolitical concerns.
- China is experiencing a growth recession, with deflation fears growing.
- Federal debt and deficits have ballooned.