Are We in a Bubble? Not Yet, But the Air Is Getting Thin

Every few years, the market gets accused of losing its mind. The headlines start screaming bubble, the bears rise from hibernation, and pundits recycle every chart from 2000 and 2008. Today, that narrative has a new target: the AI-driven bull market that’s powered the S&P 500 and Nasdaq to record highs. The question on everyone’s mind, from portfolio managers to retail traders is simple: Are we in a bubble again?

My answer, echoing Goldman Sachs’ latest research, is: not yet. But we’re closer than most investors think.

What a Real Bubble Looks Like

To understand where we stand, it helps to remember where we’ve been. Financial history is filled with manias, each fueled by the same human ingredients: innovation, greed, leverage, and eventually, denial.

The Tulip Mania (1630s): Holland’s merchants bid up tulip bulbs to the price of homes. When the market crashed in 1637, fortunes evaporated overnight.
The South Sea Bubble (1720s): A speculative frenzy around a British trading company that never delivered the profits investors imagined.
The Roaring Twenties & 1929 Crash: Easy money, margin debt, and blind optimism led to the Great Depression.
The Dot-Com Bubble (late 1990s): Companies with no earnings but catchy URLs hit billion-dollar valuations before collapsing.
The Housing Bubble (2000s): Fueled by leverage, subprime loans, and the illusion that home prices could never fall.

Every one of these had three common traits:

Prices completely detached from underlying cash flows or utility.
Widespread leverage leading to investors borrowing to chase gains.
A mass belief that “this time is different.”

Valuations: High, But Not Hysterical

Today’s market undeniably looks expensive. The S&P 500 trades around 21x forward earnings, compared to a 25-year average near 17x. The Nasdaq’s valuation is richer still. But in isolation, high valuations don’t make a bubble. The context matters.

Corporate profits are strong, balance sheets are cleaner, and interest rates, while higher than 2021, are falling from cycle highs. Goldman Sachs points out that the AI-driven productivity story has real earnings support, not just hype. Companies like NVIDIA, Microsoft, and Amazon aren’t tulip bulbs, they’re cash-flow machines with double-digit earnings growth and dominant moats.

Contrast that with 1999, when most tech firms barely had revenue. Back then, the NASDAQ traded at 120x earnings. Today, even with AI enthusiasm, it’s less than half that.

So yes, prices are rich. But they’re not insane.

Concentration and Fragility

One genuine concern is market concentration. The top 10 stocks, mostly megacap tech, now make up about 35% of the S&P 500’s market cap. That’s similar to dot-com levels. Concentration can create fragility: if even one of these giants disappoints, the index feels it.

But this dominance also reflects fundamental strength. These aren’t speculative startups. They are global platforms with fortress balance sheets. Apple has $160 billion in cash. Microsoft’s free cash flow covers its dividend five times over. Compare that to Pets.com, which burned cash faster than it raised it.

Still, concentration cuts both ways. For traders, it means risk management is more critical than ever. When one or two names drive the entire market, hedging exposure through SPY or QQQ options and other methods isn’t optional, it’s survival.

AI: The Real Thing or the New Tulip?

The current market cycle revolves around Artificial Intelligence, and the parallels to past bubbles are tempting. Every transformative technology (like railroads, electricity, the internet) has gone through a boom-bust phase. The AI infrastructure build-out is following that same curve.

We’re seeing massive capital spending across the AI stack: chips, data centers, power grids. Goldman’s report calls it an “infrastructure arms race.” That’s bullish in the short term but risky long term if investment outruns demand.

However, unlike tulips or dot-com startups, today’s AI leaders already have monetizable products. Microsoft is integrating AI into its software suite; Amazon is embedding it into AWS; NVIDIA sells the literal picks and shovels of this digital gold rush. These firms are producing tangible productivity gains, not vaporware.

That’s why Goldman stops short of the “bubble” label. The story isn’t speculation alone. It’s backed up by fundamental innovation with speculative edges.

The Macro Backdrop: A Different Animal

Let’s look at the macro picture. The U.S. economy, despite two years of rate hikes, is still growing around 2% GDP. Unemployment sits near 4%, inflation has cooled below 3%, and corporate earnings are beating estimates. Compare that to 2007, when credit markets were imploding beneath the surface.

Consumer balance sheets are relatively healthy. Debt-to-income ratios are below pre-2008 levels. Housing prices are cooling but not collapsing. There’s no systemic leverage comparable to the subprime era.

Even in the speculative corners like AI startups or small-cap tech, leverage is limited. Venture capital funding has tightened, SPACs are dead, and the IPO pipeline remains cautious. That’s not bubble behavior.

If anything, this market still has pockets of skepticism, not euphoria.

Michael Burry, Again

Of course, no “bubble” conversation is complete without mentioning Michael Burry, the contrarian legend of The Big Short. He recently disclosed bets against AI stocks and the broader market. His track record demands respect, but timing matters.

Remember: Burry was early in 2008. He started shorting housing in 2005 and spent years losing money before being proven right. If he’s early again, traders shorting this AI bull run might face the same pain before vindication. The market can stay irrational longer than shorts can stay solvent.

The lesson isn’t to dismiss him. Rather, it’s to understand the difference between macro correctness and market timing. You can be right too soon and still lose.

The Early Warning Signs

Goldman’s analysts provide a “bubble checklist,” and a few lights are flashing yellow:

Retail speculative activity is creeping back: options volume, especially deep OTM calls, is rising.
Valuations in some AI infrastructure names (think SMCI, ARM, or smaller chip plays) are stretched.
Capital intensity is surging: companies racing to spend billions on GPUs and data centers.
Narrative over fundamentals is creeping in: “If it mentions AI, it’s a buy.”

But these are early-stage warnings, not full mania. There’s no mass IPO frenzy, no SPAC boom, no widespread margin leverage. Retail enthusiasm hasn’t reached 2021 meme-stock levels.

Where Traders Should Focus

For traders and investors, this phase calls for measured participation, not panic. We’re still in a momentum expansion, not a speculative climax. That means:

Trade strength, not hope. Stick with companies showing real earnings acceleration.
Use defined risk. Credit/debit spreads over naked calls. Make sure stops are in place for all entries.
Hedge exposure. When the VIX is cheap, protection is too.
Rotate smartly. Industrials, energy, and select financials remain under-owned.
Stay data-driven. Watch for margin compression, excess capex, and retail FOMO spikes.

The goal isn’t to predict the top. It’s to recognize when the character of the tape changes. For example, when price action disconnects from fundamentals. Parabolic moves become daily events. Bad news stops mattering. That’s when you step aside.

Final Take: A Rational Boom

We are not in a bubble . . . yet. We’re in what I’d call a rational boom. That is, one fueled by innovation, liquidity, and real productivity gains. The seeds of excess are there, but they haven’t sprouted into mania.

If history teaches anything, it’s that bubbles don’t burst from the top. Instead, they inflate quietly, feeding on success until disbelief disappears That’s when you’ll know. When everyone’s convinced “AI can’t go down,” that’s when the real danger begins.

Until then? Trade the trend, respect the risk, and remember: this isn’t tulips. At least not yet.

Want more insights on trading? For more on swing trading check out my swing service at bullsonwallstreet.com

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Information on Personal Mentoring.

Paul J Singh