Why I am On Hold: AI 'Bubble' Compared to History
Valuations are famously useless in determining the next market crash, however.
2025 has been a banner year for asset returns, no matter which way you look at it.
Leading gains is gold, up a blistering 64% in USD terms, followed by Chinese and Singapore stocks up 22% and US stocks up at 16%.
However, looking to 2026, I am cautious and will put on hold my regular dollar cost averaging into assets. This is because with gold’s amazing rally and growing concerns about an AI ‘bubble’, I would like to start building a cash war chest.
Currently, tech stocks make up 50% of the US stock market. This means if you are invested in a US stock ETF, your exposure to tech stocks has never been greater.
In addition, the AI ‘bubble’ is trading at a 10-year rolling PE that exceeds the 1929 stock market rally just before the Great Depression crash.
However, it has yet to exceed the Dotcom bubble of 1999.
As a market cap % of US GDP, the current AI ‘bubble’ has far exceeded both historical events.
Nevertheless, there are those who say that the AI ‘bubble’ is different. That AI stocks are going to to add between 0.5 to 3.4 % points to US productivity in the long term. That is more than double historical GDP growth rates.
No matter which view you hold, no one can dispute that valuations are historically stretched for the best performing assets. Which is why I’m staying prudent for now.
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