Perhaps the question I hear asked most often is: “Are we in a bubble? What’s happening with this artificial intelligence thingie?”
I picked my favorite charts that shed light on this issue. All of these were pulled from my Q3 Review & Update quarterly call, which I do for RWM clients.
We have heard a lot of kvetching (sorry about using technical jargon) about the S&P’s big five, mag seven, and top ten. The top five is ~27% of the index, about where we were in the late ’60s and early ’70s. What sent concentration down over the following 30 years wasn’t a market crash; it was primarily the lack of Anti-Trust enforcement.1
Giant conglomerates were not in favor; M&A was cautiously watched. Most vertically integrated industries were carefully monitored; anywhere the consumer was disadvantaged, they were often not allowed to proceed. You simply could not just merge or buy whoever you wanted.
Concentration really began to tick up after a very significant regime change in M&A and antitrust enforcement in the late ’80s and early ’90s. Fast forward to what’s taken place over the past 15 years — it’s really gone postal.
Chart via Deutsche Bank Research Institute
I showed a table last year on the Magnificent Seven: 846 mergers have taken place over the past 15 years (as of a year ago!). In an era of traditional antitrust enforcement, we simply wouldn’t have 7 companies become the giant conglomerates that dominate everything today. Instead, these companies would be several hundred competitive firms; and if you believe what Adam Smith had to say, this would lead to better services at lower prices. The Mag 7 are probably 100 standalone companies, many of which would be S&P 500 companies in their own right.2
So while the bears are focused on concentration, they are ignoring the history of how these companies came together. The concentration meme mistakes these 300 companies for just 7 giant vertically integrated firms ….
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Let’s see how market concentration around the world looks. This chart is quite telling.
Many of the world’s largest and/or most advanced economies have a concentration of their top 10 companies at 60, 70, 80% — Canada, France, the UK, Germany, Italy, Hong Kong, Taiwan, and Korea. Yes, equity market concentration is something we should all pay attention to — but the US is on the relatively low end of the scale compared to the rest of the world.3
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Perhaps the most interesting answer to the question “Are we in a bubble?” is the four biggest companies heading into the dot-com peak, and today.
Intel and Microsoft (before they entered the Dow) sported P/E ratios of 47 and 60, respectively. Oracle was at 120, Cisco, 130.
Today, Microsoft is under 20. Wait — you’re telling me that heading into the dot-com implosion, Microsoft was 3X as expensive as it is today? Apple at 33, pricey, but they are not only one of the biggest companies in the world, but one of the most profitable. Google at 25. Nvidia at 18? That sounds reasonable.
Ed Yardeni reminds us that the forward P/E of the technology sector today is 22; for the entire S&P 500, it is 20.4. In 2000, we were looking at 55 and 25 — Technology was 2X as expensive as it is now.
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Home in on Nvidia, the poster child for the claim of an artificial intelligence bubble. It has grown into its P/E price. It now sports the same P/E ratio it did way back in 2019 — before the pandemic, before the CARES Act, before the semiconductor bill, before ChatGPT became a household name. It’s back to the same P/E ratio. That is an astonishing data point I find hard to ignore.
Its earnings have caught up to its price — and, more precisely, it’s given up a trillion dollars in market cap this year, the price has become a whole lot more rational relative to earnings. Again, when you see a chart like this, does it scream bubble to you?
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Finally, I want to share an astonishing chart via the Deutsche Bank Research Institute. It shows how much the US has been spending on private AI investment relative to the rest of the world. This is a red flag for the people hyper-focused on a bubble.
The more accurate way to think about it (IMO) is that every new technology comes with massive overinvestment and an over-allocation of capital toward that technology. This turns out not to be a bad thing (unless it’s your capital).
We built thousands of miles of railroad track in the 1800s, and most of those rail companies went bankrupt. The survivors bought up all that railway and connected those tracks into a giant coast-to-coast network for pennies on the dollar. Then came the Telegraph companies; into the 20th century, you had Telephone, Radio, Oil, Automobiles, Television, Aviation, Semiconductors, Computers, etc.
My favorite example is bandwidth and fiber. Global Crossing and Metromedia Fiber laid 1000s of miles of dark fiber for thousands of dollars per mile — then went bankrupt. The telecos and cable cos bought it up for pennies per mile. If that did not happen, YouTube, Facebook, Netflix, Instagram, and all the rest of the bandwidth-intensive firms would not be free or even reasonable.
Would you subscribe to Netflix or Disney+ if they were $400 per month? Without those cheap, fat pipes, those services would not exist. Somebody had to spend billions to build them and then go belly up…
Misallocation of capital is ultimately a positive. My friend Dan Gross wrote a book called Pop: Why Bubbles Are Great for the Economy — this chart could come right out of his book. Look at US investment in AI: it’s 20 times greater than China’s, which in turn is more than double the UK’s, or Canada’s, or France’s.
There’s a reason the US is the leader in this space: so much money is sloshing around, and that money is finding its way to investments like AI. Is there overinvestment in this space? Probably. There is endless amounts of capital. Go to any of the wealthier areas of the country — the Hamptons, Palm Beach, Newport, Nantucket — and it’s astonishing how much money is out there. Some of it buys beach houses, but a lot of it gets misinvested.
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Does that mean this is a bubble? Does that mean AI is going to put everybody out of work? Does that mean this is a disaster?
Historically, probably not. Most of the data I see does not say we are in the midst of a bubble remotely like 1999-2000.
That doesn’t mean capital won’t get misallocated, and it doesn’t mean this can’t become a bubble. I can promise you it DOES NOT mean that this bull marekt will not end one day. But so far, so good.
Previously:
The Magnificent 493 (August 12, 2025)
Stocks, Bubbles & Market Myths (January 16, 2026)
Rational Exuberance? (November 24, 2025)
A Short History of Bubbles (October 24, 2025)
FOOTNOTES
1. Some of the lower prices and lower concentration seem to be related to both A) De-Conglomerization, and B) higher inflation post 1073 Arab Oil Embargo.
2. Facebook would have to compete not just with TikTok, but with Instagram, WhatsApp and Messenger, Reels, Threads, etc. Google may have started out as search, but its leveraged that into dominant positions in enterprise software, Storage, Google Drive, YouTube, Google Cloud, Chrome, Android, Google Play, Google Maps, Gemini AI, Nest, Motorola, Waymo, Wiz, etc.
The same is true for Amazon — which includes streaming Amazon Prime, mega firm Amazon Web Services, as a giant standalone entity.
Look at Apple: while the phone is a big part of their revenue, Apple Services alone would be an S&P 500 company. The earbuds, Beats, and the rest of their audio business would be its own standalone company. This is to say nothing of Microsoft, which owns so much stuff it’s almost impossible to keep up.
Google bought YouTube ~20 years ago in 2006 for the then-outrageous price of $1.65 billion. On its own, YouTube would be one of the biggest companies in the S&P 500.
3. The caveat here is that the US population is less than 5% of the global population, and yet we’re 25% of world GDP and 50% of world market cap. Perhaps other countries don’t have room for so many companies, and only their big winners show up. I can’t fully explain it — I can just point out that if this is a problem in the US, it’s a much bigger problem in the rest of the world.
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Illustrative wartime image from earlier in the conflict.
Iran's bridges have come under fresh strikes, via social media/X.
MSNBC; Getty Images
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