The stock market may look like it’s on a high, but according to Goldman Sachs (GS), it hasn’t crossed into bubble territory.
“There are elements of investor behaviour and market pricing currently that rhyme with previous bubbles,” Peter Oppenheimer, Goldman’s chief global equity strategist, wrote in a new note. “However, we see key differences.”
The report points to several similarities between today’s market and past speculative booms. Valuations are climbing, market leadership is narrowing, and capital intensity is increasing. Additionally, the emergence of vendor financing in the AI space is also echoing dynamics seen in the late-1990s tech bubble.
Oppenheimer points out that bubbles typically occur when the combined market value of companies linked to a new technology far exceeds the cash flows they can realistically generate. That disconnect hasn’t happened yet, he said.
The AI boom so far has been led by a group of tech giants — including Nvidia (NVDA), Microsoft (MSFT), and Google (GOOG) — with little sign of the explosive competition that typically fuels market excess.
Indeed, Big Tech’s dominance has ballooned. The five largest US tech companies are now worth more than the combined markets of the EURO STOXX 50 (^STOXX50E), the UK, India, Japan, and Canada. Meanwhile, the 10 biggest US stocks — eight of which are tied to tech — account for nearly a quarter (24.5%) of the entire global equity market, at roughly $25 trillion.
That level of concentration could raise bubble comparisons, and has even prompted investors to start questioning “whether all of this is rational or… classic signs of an unsustainable bubble.”
But unlike those earlier episodes, Oppenheimer argues that today’s rally has been supported by strong fundamentals, “rather irrational speculation about future growth.” The report also noted the biggest winners — such as leading AI and cloud companies — have unusually strong balance sheets, providing a cushion that many dot-com firms lacked.
Still, Oppenheimer isn’t dismissing concerns outright. Valuations in the technology sector are “becoming stretched,” the note said, citing a range of metrics including P/E ratios, PEG rations, price-to-book versus return on equity, and dividend discount models.
However, those valuations have not yet reached the extreme levels seen in past bubbles such as the dot-com era or the late stages of the 2020-2021 tech surge.
For now, the rally appears to be on firmer ground, though not without risks.
