I know most people just gloss over my posts and inane ramblings, rightfully so. But I figured I drop in some thoughts as it seems there is a bit of a dichotomy here between AI bubble and market valuations.
First, I do not believe were in an AI bubble similar to the dot.com buble. Yet. These companies make money, there is a lot of money behind it driving it forward as well. Yes, some stocks are super frothy for sure, but as Jensen Huang recently stated, we are a few hundred billion dollars into a a multi trillion dollar industry. And while I think he may have been underselling how much we are into it, his statement did make sense. There are going to be winners and losers in AI as well, but I don't think we'll have the massive dot.com bubble burst where many companies went to zero. Will OpenAI become Intel and go from $500B valuation to $50B, or will it be like NVDA and go from $500B to $5T? I'm not that smart for sure, but I think there is going to be massive spend and revenue in AI, so I'll do my best to ride that wave, cautiously however because I'm very very near retirement, but am greedy and don't want to miss this gravy train.
Further, if you own stocks like PLTR and CRWV, SMCI, etc... and haven't taken some off the table already, shame on you. I often regale my kids with stories of how "smart" I was for selling half my stake of MSFT at $60 after tripling my money, or how I've made a LOT of money in NVDA (and still own quite a bit at a very low cost basis), but if I had held everything, well, I'd be a lot richer man. But, I still sleep very well at night, so I'm not complaining.
Will the AI bubble bust? I don't think so as people have learned from the past, but valuations will certainly go down sooner rather than later, so try to stay a bit ahead of the curve, use trailing loss stops, etc...
In regard to the market being overvalued, it most certainly is on any metric you want to look at. Shiller ratio (which I monitor, but down live and die by) is approaching all time high levels, last seen in the late 90's. Forward S&P pe ratio is super high as well, I prefer it when it's the 18-20 level, all things being equal as opposed to 24-25 level. This brings me a lot more pause than thinking about if/when AI is going to burst as I am 75% indexed. Am I selling, no. But am I deploying new, non-retirement monies into these indexes, no.
In the short term, there are a lot of factors that will continue to drive the market forward. 4th quarters are usually good ones. Fed is going to cut rates, maybe not at a super rapid pace, but certainly going to see a number of cuts over the next 12-18 months. There is an all time high amount of money in cash or similar right now, ~$7.5 trillion that will need to find some yield if rates go down. And if rates go down, you can see some tapping into the $35-$40T home equity monies as well. I could get into more detail about these, but these to me are the major drivers. Someone who manages massive pension funds or endowments aren't going to lose their job if they may 4-5% returns and inflation is ~3%. But, if/when the "risk-free" rate starts going down, that is going to put ample pressure of fund managers to look for yield (this is my major thesis for having a lot of dividend stocks/funds for the next few years as I retire, not working out great, sure, but I've previously mentioned I'm not super smart). Anyway, I think the next 4-5 months are going to be decent.
And if that is the case, we are coming off three years of 20ish% returns. This is not normal. I'd anticipate much more flat or negative returns coming up and then we have the next election cycle and all kinds of uncertainty.
And I know that we're not supposed to mention the p word in here, but we are coming up on 2 weeks of government shut down and no mention of this anywhere? Millions of families will be coming up shortly without having received a pay check. I feel very sorry for those families, and really hope we can get this sorted sooner rather than later for their sakes. But if this drags on, that is not great for the economy.
My conclusion is the economy is still strong, the U.S. leads this way in technology and AI and innovation, but there are a lot of underlying issues that are going to rear their heads in early-mid 2026. Can easily see a 20% correction, and eventually we are going to get one that isn't a V or U type recovery where we hold our noses for 3-4 months and then wala, everything is all days of wine and roses.
