The S&P 500 is overvalued, according to its cyclically adjusted price-to-earnings (CAPE) ratio, which is historically high at 41.
That is the highest it’s been since the 1999-2000 dot-com boom
We all know what happened after that peak. Are we on a similar track right now? That is impossible to know, because this is a different market and the current boom is generated more by real earnings, thanks mainly to AI, than speculation.
But what it does mean is that tech and AI stocks with high valuations have little room for error, so investors should be careful to look at the various valuation metrics, like the P/E ratio, before piling into a high-growth stock. Still, there are some incredibly successful stocks with massive returns that remain reasonably valued, and even undervalued. These are the AI stocks you want to focus on.