Bank of America strategist Michael Hartnett warned of a potential bubble in AI stocks as valuation metrics climb to historic highs, surpassing levels seen during past market peaks. Hartnett highlighted the S&P 500’s price-to-book ratio, which compares the index’s total market value to its assets minus liabilities. In August, the S&P 500’s price-to-book ratio reached a record 5.3, surpassing the 5.1 peak set during the dot-com bubble in March 2000. The S&P 500’s 12-month forward price-to-earnings ratio is at its highest level since the dot-com era, excluding August 2020, signaling an overheated market. The Shiller cyclically-adjusted price-to-earnings ratio is showing levels comparable to 1929, 2000, and 2021, according to Insider. Hartnett cautioned that a market unwind could benefit bonds and non-US stocks. AI stocks have surged as companies consistently beat earnings expectations, driving optimism and pushing valuation metrics to record highs.
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