Recently, many financial commentators have warned that the dominance of large tech stocks in the stock market and their high valuations are reminiscent of the dot-com bubble era. However, legendary strategist Charles Clough, who accurately predicted the market crash in the late 1990s, holds a different view. He believes the current frenzy around tech giants is fundamentally different from previous episodes. Clough points out that today’s technology companies possess robust business models and the ability to consistently generate substantial profits, which grants them a degree of immunity to economic downturns. He adds from a macroeconomic perspective that the market liquidity environment is more stable and is expected to continue supporting stock prices. Clough remains optimistic about U.S. stocks overall, believing that if investors focus on the long term and patiently wait for pullback opportunities, the stock market could reach higher levels in one or two years.
The structural characteristics of the current market are drawing attention. Analysts warn that market breadth is narrowing, with upward momentum concentrated mainly in a few AI-related tech giants. If this investment theme fades, broader indices could be at risk. Data shows that although the S&P 500 has risen nearly 10% since early July, the proportion of constituent stocks trading above their 50-day moving average has significantly dropped from over 80% in early July to less than half. Meanwhile, the S&P 500’s forward price-to-earnings ratio has reached 22.7 times, significantly higher than its 10-year average of 18.8 times, indicating that valuation pressures cannot be ignored.
Amid growing discussions about an “AI bubble,” several Wall Street institutions have offered differing insights. Cliff Asness, co-founder of quantitative investment giant AQR Capital Management, believes that although U.S. stock valuations are at historically high levels, they have not yet reached a point that could be considered a “bubble.” Drew Pettit, a senior strategist at Citi, points out that while a lot of positive news is already priced in and a short-term market correction is possible, the “fundamental AI narrative” supporting the long-term bull market remains intact, which could create buying-on-dips opportunities for investors.
An analyst team at JPMorgan advises “buying the dips before the year-end,” believing the U.S. stock bull market pattern remains intact and expecting the S&P 500 to break through the 7000-point mark in the short term, representing a further 3% gain from current levels. The bank’s reasons for optimism include a strong U.S. economy, robust corporate earnings, and key headwinds fading. Goldman Sachs compares the current surge in AI spending and valuations to the early stages of the late-1990s tech boom, suggesting it is more akin to the building phase of 1997-1998 rather than the speculative peak of 1999-2000, emphasizing that the AI investment cycle still has room to progress.
