It is not hard to see why some investors are getting nervous about the stock market.<\/p>\n
Elon Musk\u2019s money-losing SpaceX recently went public in the biggest initial public offering (IPO) in history, with its valuation quickly topping $2 trillion and, at times, exceeding 100 times annual sales \u2013 an extraordinary multiple for a mega-cap company. Meanwhile, an even bigger AI flotation is in the pipeline, with Anthropic reportedly considering a $2trillion-plus IPO.<\/p>\n
And just look at 2026\u2019s high-fliers. The 10 best-performing stocks in the S&P 500 this year are all beneficiaries of the AI infrastructure boom, notes Creative Planning strategist Charlie Bilello. SanDisk is up almost 600 per cent, Dell has almost quadrupled, Micron has surpassed a $1 trillion market capitalisation after more than tripling, while Intel, AMD and others have all bagged triple-digit percentage gains.<\/p>\n
Then there is the spending. The world\u2019s biggest technology companies are pouring trillions of dollars into data centres, chips and other AI infrastructure, with investors waiting to see how much of that money will ultimately translate into profits.<\/p>\n
It all looks a little feverish, exuberant, bubbly \u2013 doesn\u2019t it?<\/p>\n
A casual glance at the headlines \u2013 \u201cThe AI boom could trigger the next crash, central banks warn\u201d, \u201cUS tech stock correction likely, warn ECB economists\u201d, \u201cNorway wealth fund warns of AI-driven stock market bubble\u201d \u2013 might suggest as much.<\/p>\n
That last headline refers to Nicolai Tangen, head of Norway\u2019s $2.4 trillion sovereign wealth fund \u2013 the world\u2019s largest \u2013 warning that an extreme market collapse could halve the value of its portfolio. Tangen has been surprised by how resilient markets have proved. \u201cIf you went back two years and told me this is going to happen with the Hormuz strait, trade barriers, geopolitical tensions, and so on, I would never have thought that the market would be as resilient as it is,\u201d he said.<\/p>\n
All of which sounds distinctly alarming. Before reaching for the panic button, however, there are a few things worth considering.<\/p>\n
Extraordinary earnings<\/p>\n
For one, there is something underneath the extraordinary share-price gains: extraordinary earnings. S&P 500 earnings are on course to rise around 50 per cent year on year, notes Bilello, with second-quarter earnings beating expectations by a record 29 per cent. Analysts expect earnings to grow 32 per cent in 2026, more than twice what they expected at the beginning of the year.<\/p>\n
Clearly, this is not the late 1990s, when companies with no earnings routinely commanded extraordinary valuations.<\/p>\n
Indeed, the valuation picture is more complicated than the headlines suggest. The US technology sector has risen around 65 per cent since the start of 2025, says Ritholtz Wealth Management\u2019s Ben Carlson, but its forward price-earnings ratio has fallen from around 29 to 22. \u201cEarnings have been growing so fast that even though the stock market keeps increasing, valuations have actually fallen,\u201d notes Carlson.<\/p>\n
That same point is stressed in a recent Goldman Sachs report. Indeed, industrial stocks trade at higher valuations than tech stocks, says Goldman, with the technology sector now trading in line with its 20-year average.<\/p>\n
And this idea is also emphasised in a recent Schroders report. Far from ignoring the risks, markets are \u201cwary\u201d, says Schroders, with \u201cvaluations for many of the big tech companies\u201d at or near \u201ctheir cheapest levels for a decade\u201d.<\/p>\n
Secondly, while there has been much angst about indices being overly reliant on high-flying AI giants, the market has in fact been broadening. The equal-weighted S&P 500, which gives roughly the same weight to each company rather than weighting them by market value, has outperformed the conventional index. Most of the magnificent seven stocks have underperformed the index in 2026. Smaller companies, value stocks, and non-US firms have outperformed. <\/p>\n
In other words, it would be wrong to look at a few spectacular share-price gains and conclude that the entire stock market has become detached from reality.<\/p>\n
Concerns<\/p>\n
Still, there are causes for concern. The obvious one is whether the huge growth in earnings can continue, and whether the enormous sums being spent on AI will ultimately pay off.<\/p>\n
The hyperscalers \u2013 Alphabet, Amazon, Microsoft, Meta and others \u2013 are spending at an extraordinary rate on data centres, chips and electricity, while increasingly turning to debt, leases and other forms of financing to fund the buildout. The Financial Times recently noted that Goldman Sachs estimates the major hyperscalers have accumulated some $1.5 trillion of lease commitments, around $1 trillion of which relates to leases that have not yet commenced and therefore do not appear on their balance sheets. Morgan Stanley has identified a further $982 billion of future purchase commitments for computing power, chips, equipment and electricity across Alphabet, Microsoft, Amazon, Nvidia and Oracle.<\/p>\n