Maybe the query I hear requested most frequently is: “Are we in a bubble?” and “What’s occurring with this synthetic intelligence thingie?”
I picked a couple of of my favourite charts that make clear this challenge. All of those had been pulled from my Q3 Evaluate & Replace quarterly name, which I do for RWM purchasers.
I’ve heard a number of kvetching (sorry in regards to the technical jargon) in regards to the S&P’s large 5, magazine 7, and high 10. Let’s see if the noise incorporates any sign.
The highest 5 is now ~27% of the index, about the place we had been within the late ’60s and early ’70s, however up considerably from the place we had been within the Nineteen Nineties and 2000s. What despatched focus down over the 30-years from 1960-90 wasn’t a market crash; I consider it was principally a critical lack of Anti-Belief enforcement.1
Big conglomerates weren’t in favor; M&A was cautiously watched. Most vertically built-in industries had been fastidiously monitored; wherever the patron was deprived, they had been typically not allowed to proceed. You merely couldn’t simply merge or purchase whoever you wished.
Focus actually started to tick up after a really important regime change in M&A and antitrust enforcement within the late ’80s and early ’90s. Quick ahead to what’s taken place because the GFC — it’s actually gone postal.
Chart through Deutsche Financial institution Analysis Institute
I confirmed Eric Balchunas’ desk final yr, which revealed the M&A historical past of the Magnificent Seven: 846 mergers had taken place over the prior 15 years (as of a yr in the past!). In an period of conventional (learn: Critical) antitrust enforcement, we merely wouldn’t have 7 corporations turn out to be the enormous conglomerates that dominate every thing (as we now have now).
As an alternative, these corporations can be a number of hundred aggressive corporations, and for those who consider what Adam Smith needed to say, this could result in higher providers at decrease costs. The Magazine 7 are in actuality one thing like ~100 standalone corporations, most of which might be S&P 500 corporations in their very own proper.2
So whereas the bears are centered on focus, they’re ignoring the historical past of how these corporations bought so big. The focus memeists mistake these 900ish corporations for simply 7 big vertically built-in corporations; that could be a conceptual mistake…
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Let’s see how market focus world wide appears to be like. This chart is sort of telling.
Most of the world’s largest and/or most superior economies have a focus of their high 10 corporations at 60, 70, even 80% — Canada, France, the UK, Germany, Italy, Hong Kong, Taiwan, and Korea. Sure, fairness market focus is one thing we should always all take note of — however the US is on the comparatively low finish of the dimensions in comparison with the remainder of the world.3
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Maybe essentially the most fascinating reply to the query “Are we in a bubble?” comes from evaluating the 4 largest corporations pre-dotcom dot-com peak versus as we speak.
Intel and Microsoft (earlier than they entered the Dow) sported P/E ratios of 47 and 60, respectively. Oracle was at 120, Cisco, 130.
Right now, Microsoft is beneath 20. Wait — you’re telling me that heading into the dot-com implosion, Microsoft was 3X as costly as it’s as we speak? Apple at 33, expensive, however they aren’t solely one of many largest corporations on the earth, however some of the worthwhile. Google at 25. Nvidia at 18? That sounds affordable.
Ed Yardeni reminds us that the ahead P/E of the know-how sector as we speak is 22; for your complete S&P 500, it’s 20.4. In 2000, we had been taking a look at 55 and 25 — Know-how was 2.5 X as costly as it’s now.
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Dwelling in on Nvidia, the poster youngster for the declare of a synthetic intelligence bubble. It has grown into its worth. It now sports activities the identical P/E ratio it did manner again in 2019 — earlier than the pandemic, earlier than the CARES Act, the semiconductor invoice, and manner earlier than ChatGPT turned a family identify. It’s again to that very same P/E ratio.
That’s an astonishing information level I discover laborious to disregard.
Its earnings have caught as much as its worth — and, extra exactly, it’s given up a trillion {dollars} in market cap this yr, so its worth has turn out to be a complete lot extra rational relative to earnings.
Once more, while you see a chart like this, does it scream bubble to you?
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Lastly, I wish to share an astonishing chart through the Deutsche Financial institution Analysis Institute. It reveals how a lot the US has been spending on non-public AI funding relative to the remainder of the world. This can be a pink flag for the folks hyper-focused on a bubble.
The extra correct manner to consider it (IMO) is that each new know-how comes with huge overinvestment and an over-allocation of capital towards that know-how.  This seems to not be a foul factor (except it’s your capital).
We constructed 1000’s of miles of railroad monitor within the 1800s, and most of these rail corporations went bankrupt. The survivors purchased up all that railway and related these tracks into a large coast-to-coast community for pennies on the greenback. Then got here the Telegraph corporations; into the twentieth century, you had Phone, Radio, Oil, Vehicles, Tv, Aviation, Semiconductors, Computer systems, and so forth.
My favourite instance is bandwidth and fiber. International Crossing and Metromedia Fiber laid 1000s of miles of darkish fiber for 1000’s of {dollars} per mile — then went bankrupt. The telecos and cable cos purchased it up for pennies per mile. If that didn’t occur, YouTube, Fb, Netflix, Instagram, and all the remainder of the bandwidth-intensive corporations wouldn’t be free and even affordable.
Would you subscribe to Netflix or Disney+ in the event that they had been $400 per 30 days? With out these low-cost, fats pipes, these providers wouldn’t exist. Any person needed to spend billions to construct them after which go stomach up…
Misallocation of capital is in the end a optimistic. My pal Dan Gross wrote a ebook referred to as Pop: Why Bubbles Are Nice for the Economic system — this chart may come proper out of his ebook. Take a look at US funding in AI: it’s 20 occasions better than China’s, which in flip is greater than double the UK’s, or Canada’s, or France’s.
There’s a motive the US is the chief on this area: a lot cash is sloshing round, and that cash is discovering its strategy to investments like AI. Is there overinvestment on this area? In all probability. There may be countless quantities of capital. Go to any of the wealthier areas of the nation — the Hamptons, Palm Seaside, Newport, Nantucket — and it’s astonishing how a lot cash is on the market. A few of it buys seaside homes, however a number of it will get misinvested.
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Does that imply this can be a bubble? Does that imply AI goes to place everyone out of labor? Does that imply this can be a catastrophe?
Traditionally, in all probability not. A lot of the information I see doesn’t say we’re within the midst of a bubble remotely like 1999-2000.
That doesn’t imply capital received’t get misallocated, and it doesn’t imply this can’t turn out to be a bubble. I can promise you it DOES NOT imply that this bull marekt is not going to finish sooner or later. However thus far, so good.
Beforehand:
The Magnificent 493 (August 12, 2025)
Shares, Bubbles & Market Myths (January 16, 2026)
Rational Exuberance? (November 24, 2025)
A Quick Historical past of Bubbles (October 24, 2025)
NOTE: My biases must be self-evident, however right here they’re: The agency’s purchasers are lengthy (a couple of have lengthy/quick holdings with AQR); my 401K is lengthy solely; tax-free munis make up my total bond portfolio. My solely quick is an ongoing guess towards silver (I assumed Gold was manner forward of itself at $5,000; then Silver spiked much more, and the commerce was apparent).
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1. A number of the decrease costs and decrease focus appear to be associated to each A) De-Conglomerization, and B) larger inflation put up 1073 Arab Oil Embargo.
2. Fb must compete not simply with TikTok, however with Instagram, WhatsApp and Messenger, Reels, Threads, and so forth. Google could have began out as search, however its leveraged that into dominant positions in enterprise software program, Storage, Google Drive, YouTube, Google Cloud, Chrome, Android, Google Play, Google Maps, Gemini AI, Nest, Motorola, Waymo, Wiz, and so forth.
The identical is true for Amazon — which incorporates streaming Amazon Prime, mega agency Amazon Internet Companies,  as a large standalone entity.
Take a look at Apple: whereas the cellphone is an enormous a part of their income, Apple Companies alone can be an S&P 500 firm. The earbuds, Beats, and the remainder of their audio enterprise can be its personal standalone firm. That is to say nothing of Microsoft, which owns a lot stuff it’s nearly unattainable to maintain up.
Google purchased YouTube ~20 years in the past in 2006 for the then-outrageous worth of $1.65 billion. By itself, YouTube can be one of many largest corporations within the S&P 500.
3. The caveat right here is that the US inhabitants is lower than 5% of the worldwide inhabitants, and but we’re 25% of world GDP and 50% of world market cap. Maybe different nations don’t have room for therefore many corporations, and solely their large winners present up. I can’t totally clarify it — I can simply level out that if this can be a drawback within the US, it’s a a lot larger drawback in the remainder of the world.
AI Disclosure:Â I wrote this myself. I used Claude and ChatGBT for analysis.
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