Both the S&P 500 (SPX) and the Nasdaq 100 (NDX) are trading near record highs, although Goldman Sachs isn’t sounding the alarm on a stock market bubble just yet.
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“There are elements of investor behaviuor and market pricing currently that rhyme with previous bubbles,” wrote Goldman Sachs chief global equity strategist Peter Oppenheimer in a note. “However, we see key differences.” One of these differences is that the rally in today’s AI companies is supported by strong balance sheets and fundamental metrics.
AI Valuations ‘Becoming Stretched’ as Market Concentration Rises, Says Oppenheimer
Oppenheimer added that bubbles generally form when the combined market capitalization of companies tied to a new technology greatly surpasses the cash flows they can actually produce, which he believes hasn’t occurred in the current market.
At the same time, Oppenheimer says that AI valuations are “becoming stretched” amid higher levels of concentration and recommends diversification. “While it appears we are not in a bubble yet, high levels of market concentration and increased competition in the AI space suggest investors should continue to focus on diversification,” wrote Oppenheimer. Today, the largest tech companies hold a 35% weight in the S&P 500 compared to 15% in 1999.
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