Are we in a bubble?

[Blake Hampton]

I don't believe P/E ratios are that good when it comes to gauging valuations; I'm more fond of return on equity and the price paid for that equity. On that front, things today look surprisingly similar to where we were during the Dot-Com Bubble, only this time the market is trading at even larger multiples of its equity. 

Today:

Dot-Com Bubble: (Notice how earnings collapse after the crash. This is why I believe basing valuations on long-term averages is generally better.)
 

Edited May 20 by Blake Hampton

[nsx5200]

So should we be debating on which one is the potential baby, amongst the carcasses in the aftermath?  I find that debate to be more interesting/useful than trying to time potential bubbles.  If anything, it helps to be prepared if/when it happens, hopefully with a decent amount of ammo in the chambers.

[Lazarus]

What exactly are you suggested, nsx? That we try to identify which AI companies will rise from the ashes of a burst bubble? Similar to identifying Wells Fargo as a safe investment in March 2009? 

[Spekulatius]

I think short semis is probably one of the better bets. They are highly cyclical .

 

I don’t short and puts seem awfully expensive. Maybe an inverse Soxx or SMH ETF

Edited May 21 by Spekulatius

[Intelligent_Investor]

On 5/20/2026 at 12:42 AM, Paarslaars said:

Well it's not just Blake is it? Buffet seems to be making the same mistake... sitting on >200B in cash for 10 years, now up to 400B. 

Buffett's problem is Berkshire is so big anything that will make a difference on Berkshire's return to shareholders would require a position size in the tens of billions. To stay under ownership thresholds, that essentially eliminates even most of the S&P 500 companies. Berkshire's investable universe is probably like 50 stocks total and then you eliminate everything not in Warren or Greg's circle of competence and you might get 15-20 companies. Everything else would be a rounding error on Berkshire's results

[Gregmal]

6 minutes ago, Intelligent_Investor said:

Buffett's problem is Berkshire is so big anything that will make a difference on Berkshire's return to shareholders would require a position size in the tens of billions. To stay under ownership thresholds, that essentially eliminates even most of the S&P 500 companies. Berkshire's investable universe is probably like 50 stocks total and then you eliminate everything not in Warren or Greg's circle of competence and you might get 15-20 companies. Everything else would be a rounding error on Berkshire's results

Nah. They can very easily take their own advice and just buy VOO rather than selling shareholders bullshit on allocation.

[nsx5200]

2 hours ago, Lazarus said:

What exactly are you suggested, nsx? That we try to identify which AI companies will rise from the ashes of a burst bubble? Similar to identifying Wells Fargo as a safe investment in March 2009? 

Yes.

 

It's a bit off-topic, but Planet Money ran an episode on the type of jobs that seems promising in the future.  This is a basic summary of the reliability of that report:

"WONG: What Maxim found was that the top third of jobs that were projected to grow the fastest did grow a lot. They rose by 57% over two decades. The bottom third of projected jobs actually grew by only 12%."

 

The interesting nugget in there that I find interesting is that green energy jobs tops that list while the U.S. solar industry is currently in a free-fall (with Freedom Forever, the 2nd largest installer in the U.S., according to AI Overview going into Chapter 11).

 

Besides the green energy jobs that's somewhat related to AI, these other two made it to the list as well: Data scientists and Information security analysts.  Both use a decent chunk of AI as tools in their business.  IMHO, these hints to the types of business that will survive and thrive post-AI crash are the ones that actually help existing business be more productive with AI.

[Marco Van Basten]

What's interesting is that insider buying seems to have picked up very sharply across the board in the last several days, may be a week or two.  

[gfp]

3 minutes ago, Marco Van Basten said:

What's interesting is that insider buying seems to have picked up very sharply across the board in the last several days, may be a week or two.  

 

Because of the way the calendar works, that is usually the case.  Annual results have to be audited so they take longer to release.  For many companies, the release of annual results bumps up against the "two weeks before quarter-end" black-out period for insiders.  Then quarterly results come out a bit faster because no audit, so following Q1 results, even the slowest companies (cough.. BOC.. cough) have almost an entire month of "open period" before June 15th cuts them off again.

 

If you wanna buy stock as an insider, mid-May to Mid June is your time to shine

Edited May 21 by gfp

[Paarslaars]

1 hour ago, Gregmal said:

Nah. They can very easily take their own advice and just buy VOO rather than selling shareholders bullshit on allocation.

Or any of the tech stocks in 2022... Meta at 10x earnings apparantly wasn't cheap enough for buffet?

[NnnnotSoSmart]

2 hours ago, Intelligent_Investor said:

Buffett's problem is Berkshire is so big anything that will make a difference on Berkshire's return to shareholders would require a position size in the tens of billions. To stay under ownership thresholds, that essentially eliminates even most of the S&P 500 companies. Berkshire's investable universe is probably like 50 stocks total and then you eliminate everything not in Warren or Greg's circle of competence and you might get 15-20 companies. Everything else would be a rounding error on Berkshire's results

A large position in GOOGL might move the needle some. BRK tripled their GOOGL(+GOOG) position-in Q1...now ~ 7% of US equity portfolio.  If there is any significant GOOGL drawdown wouldn't be surprised to see them (Buffett, Abel, Ted) add to the position.  

[73 Reds]

11 minutes ago, NnnnotSoSmart said:

A large position in GOOGL might move the needle some. BRK tripled their GOOGL(+GOOG) position-in Q1...now ~ 7% of US equity portfolio.  If there is any significant GOOGL drawdown wouldn't be surprised to see them (Buffett, Abel, Ted) add to the position.  

I still wonder why Buffett sold down the AAPL stake.  It's not as if BRK needed the money and Buffett's opinion of AAPL has remained steadfast.  

[NnnnotSoSmart]

25 minutes ago, 73 Reds said:

I still wonder why Buffett sold down the AAPL stake.  It's not as if BRK needed the money and Buffett's opinion of AAPL has remained steadfast.  

Probably the size the AAPL position grew to, and the valuation. And yet, he's been adding to GOOGL?

 

From the horse's mouth in February:

 

QUICK: You’ve sold a lot of stock that’s done very well for you, Apple—

 

BUFFETT: Well, I sold it too soon, but I bought it even sooner. So, it worked out. Yeah, I think we’ve made over $100 billion in that pretax.

 

QUICK: But you’re regretting it? You say you sold it too soon?

 

BUFFETT: No, no, I don’t have any ability to predict what stocks will do next week or next month and I will buy them if they’re cheap. I’ll buy a whole lot of them if they’re cheap and I think I really understand the business, and Apple is still our largest single investment.

 

QUICK: And you like it that way?

 

BUFFETT: Yeah, well, if I didn’t like it, I could sell it. Yeah, I can,  I think it’s a remark -- it’s better than any business we own outright. Now, we own a railroad that’s worth more money than our Apple position, for example, they’re both looked at the same way. I mean, they’re both, they’re both businesses. I expect the, I think it’s more predictable in a certain sense, that the railroad will be around 50 or 100 years from now, but it doesn’t earn the rate remotely on capital than Apple does. I mean, Apple is a business that you’ve got one, probably and your kids have got them, and—

 

QUICK: Not one, we’ve got like 20 of them.

 

BUFFET: Yeah, devices. Actually, the Bell Telephone Company was that way at one point, but they were regulated.

 

QUICK: Well, do you worry about regulation coming for some of these big tech companies, in particular Apple?

 

BUFFETT: I think the consumers are in love with them too much. I don’t, I don’t think Washington will do anything that really destroys something that every one of their voters likes and they’re using themselves. I mean, it’s a remarkable product that way. Just think of something as useful as the Apple is. I mean, it’s, Tim Cook has done better with the hand than Steve Jobs. He couldn’t have done what Steve Jobs did, but Steve Jobs handed him a hand that Steve would not have done as well. Steve picked him. I mean, when you get right down to it, and Tim was a fantastic manager, and he’s a good guy, and somehow he gets along with everybody in the world, which is, you know, that’s, that’s a technique I wouldn’t have for example. Certainly my partner, Charlie Munger, wouldn’t have had it, but I’m very happy to have it be our largest position. I was not happy to have it be as large as almost everything else combined.

 

QUICK: Okay, that makes sense.

 

BUFFETT: Although at a price I was, and they could—

 

QUICK: Right. Hold it up—

 

BUFFETT: It’s not impossible that Apple would get to a price, we would buy a lot of it, but not in this market. I mean, it just isn’t going to happen in this market.

 

QUICK: How much would stocks have to come down for you to think that this is really attractive, if it’s—

 

BUFFETT: Well it depends on the stock. Some stocks now, generally speaking, they move together to quite a degree, but, but I don’t think I know what the market’s going to do. I do think I’ve got a reasonable idea of what a business is worth. I have no idea what the stock market’s going to do, and I don’t think anybody else does either.

 

QUICK: You don’t necessarily follow tech companies and Apple, people look at as a tech company, but you always looked at as a consumer company.

 

BUFFET: It’s a consumer.

 

QUICK: Yeah.

 

BUFFETT: Company.  

 

QUICK: So what do you do about all of these tech stocks and the AI trends that are there? Do you try and follow any of that? Do you get involved in any of those industries?

 

BUFFETT: Well I don’t because A, I wouldn’t be any good at it, and besides, I’m so late to the game.

 

https://www.cnbc.com/2026/03/31/cnbc-exclusive-transcript-berkshire-hathaway-chairman-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box-today.html

 

And yet they're buying GOOGL in Q1?  Watch what he does, not what he says.

Edited May 21 by NnnnotSoSmart

[73 Reds]

4 minutes ago, NnnnotSoSmart said:

Probably the size the AAPL position grew to, and the valuation. And yet, he's been adding to GOOGL?

 

From the horse's mouth in February:

 

QUICK: You’ve sold a lot of stock that’s done very well for you, Apple—

 

BUFFETT: Well, I sold it too soon, but I bought it even sooner. So, it worked out. Yeah, I think we’ve made over $100 billion in that pretax.

 

QUICK: But you’re regretting it? You say you sold it too soon?

 

BUFFETT: No, no, I don’t have any ability to predict what stocks will do next week or next month and I will buy them if they’re cheap. I’ll buy a whole lot of them if they’re cheap and I think I really understand the business, and Apple is still our largest single investment.

 

QUICK: And you like it that way?

 

BUFFETT: Yeah, well, if I didn’t like it, I could sell it. Yeah, I can,  I think it’s a remark -- it’s better than any business we own outright. Now, we own a railroad that’s worth more money than our Apple position, for example, they’re both looked at the same way. I mean, they’re both, they’re both businesses. I expect the, I think it’s more predictable in a certain sense, that the railroad will be around 50 or 100 years from now, but it doesn’t earn the rate remotely on capital than Apple does. I mean, Apple is a business that you’ve got one, probably and your kids have got them, and—

 

QUICK: Not one, we’ve got like 20 of them.

 

BUFFET: Yeah, devices. Actually, the Bell Telephone Company was that way at one point, but they were regulated.

 

QUICK: Well, do you worry about regulation coming for some of these big tech companies, in particular Apple?

 

BUFFETT: I think the consumers are in love with them too much. I don’t, I don’t think Washington will do anything that really destroys something that every one of their voters likes and they’re using themselves. I mean, it’s a remarkable product that way. Just think of something as useful as the Apple is. I mean, it’s, Tim Cook has done better with the hand than Steve Jobs. He couldn’t have done what Steve Jobs did, but Steve Jobs handed him a hand that Steve would not have done as well. Steve picked him. I mean, when you get right down to it, and Tim was a fantastic manager, and he’s a good guy, and somehow he gets along with everybody in the world, which is, you know, that’s, that’s a technique I wouldn’t have for example. Certainly my partner, Charlie Munger, wouldn’t have had it, but I’m very happy to have it be our largest open. I was not happy to have it be as large as almost everything else combined.

 

QUICK: Okay, that makes sense.

 

BUFFETT: Although at a price I was, and they could—

 

QUICK: Right. Hold it up—

 

BUFFETT: It’s not impossible that Apple would get to a price, we would buy a lot of it, but not in this market. I mean, it just isn’t going to happen in this market.

 

QUICK: How much would stocks have to come down for you to think that this is really attractive, if it’s—

 

BUFFETT: Well it depends on the stock. Some stocks now, generally speaking, they move together to quite a degree, but, but I don’t think I know what the market’s going to do. I do think I’ve got a reasonable idea of what a business is worth. I have no idea what the stock market’s going to do, and I don’t think anybody else does either.

 

QUICK: You don’t necessarily follow tech companies and Apple, people look at as a tech company, but you always looked at as a consumer company.

 

BUFFET: It’s a consumer.

 

QUICK: Yeah.

 

BUFFETT: Company.  

 

QUICK: So what do you do about all of these tech stocks and the AI trends that are there? Do you try and follow any of that? Do you get involved in any of those industries?

 

BUFFETT: Well I don’t because A, I wouldn’t be any good at it, and besides, I’m so late to the game.

 

https://www.cnbc.com/2026/03/31/cnbc-exclusive-transcript-berkshire-hathaway-chairman-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box-today.html

 

I think he kind of admits selling it was a mistake.  Back when he bought KO and AXP they comprised a pretty good sized % of the entire company and he never felt compelled to sell even as their valuations rose.  The fact that AAPL was as large as all the other equities in the portfolio really doesn't mean much b/c operating companies drive BRK's success today.  And he acknowledges that AAPL is better than any of BRK's wholly owned businesses. You can tell by this dialogue that he struggles with having sold it down.

[Eldad]

13 minutes ago, 73 Reds said:

I think he kind of admits selling it was a mistake.  Back when he bought KO and AXP they comprised a pretty good sized % of the entire company and he never felt compelled to sell even as their valuations rose.  The fact that AAPL was as large as all the other equities in the portfolio really doesn't mean much b/c operating companies drive BRK's success today.  And he acknowledges that AAPL is better than any of BRK's wholly owned businesses. You can tell by this dialogue that he struggles with having sold it down.

I don’t necessarily disagree with you but I think Chris Bloomstran would probably say in the late 1990s KO got up to like 13% of BRK’s value which I think is similar to what AAPL was and Buffett issued a lot of BRK equity to buy General RE. So kind of backdoor sold KO and got a bunch of bonds and an insurance business. 
 

Plus I think KO is like the railroad and will be about the same in 2100 as it is now. AAPL in 2100 is a total crapshoot and if I had to guess, I would guess it will not exist as a stand alone company. 

[Parsad]

2 hours ago, Paarslaars said:

Or any of the tech stocks in 2022... Meta at 10x earnings apparantly wasn't cheap enough for buffet?

 

And there was more than enough volume for them to make as large a purchase as AAPL.  Cheers!

[Cod Liver Oil]

5 hours ago, Spekulatius said:

I think short semis is probably one of the better bets. They are highly cyclical .

 

I don’t short and puts seem awfully expensive. Maybe an inverse Soxx or SMH ETF

Long Nintendo is probably short semis.

[Ulti]

“You know, Berkshire is subject to the 15% corporate alternative minimum tax. And if they don't pay an effective tax rate more than 15% in cash taxes over a three year running period, they will be taxed on their unrealized gains.”

From The Morning Filter: Berkshire Hathaway After Warren Buffett: An Early Read on What Investors Can Expect, Mar 5, 2026
https://podcasts.apple.com/us/podcast/berkshire-hathaway-after-warren-buffett-an-early/id1792280057?i=1000753375746&r=990
This was in an interview with Gregg Warren who covers Brk at Morningstar

as to a partial reason for selling.

[hardcorevalue]

They are depreciating the chips over 7 years while the underlying tech will get commoditized. 

 

This chip demand won't last IMO.

[Spekulatius]

4 hours ago, Cod Liver Oil said:

Long Nintendo is probably short semis.

I surely hope so.

[Gamecock-YT]

13 hours ago, Intelligent_Investor said:

Buffett's problem is Berkshire is so big anything that will make a difference on Berkshire's return to shareholders would require a position size in the tens of billions. To stay under ownership thresholds, that essentially eliminates even most of the S&P 500 companies. Berkshire's investable universe is probably like 50 stocks total and then you eliminate everything not in Warren or Greg's circle of competence and you might get 15-20 companies. Everything else would be a rounding error on Berkshire's results

 

[mattee2264]

Space X prospectus does have a definite dot com/South Sea bubble whiff about it. 

 

Pivoting their entire business model towards AI. Target valuation of $1.5TR. Over 100 times sales. Claiming a TAM of $28TR. Compelling story of data centers in space and colonizing Mars etc. 

 

Of course Elon is Elon and Tesla has had an anomalous valuation for ages while the rest of the market was reasonably enough valued but if someone with his promotional instincts is choosing this summer to IPO then it is probably a warning sign. 

 

Then you have Anthropic and OpenAI as well all rushing to IPO. Also hugely money losing companies. And if IPOs go as planned they will represent 5% or so of the S&P 500 and that is a lot of equity issuance for the market to absorb. 

 

There is a lot of debt being issued relating to AI and interest rates are trending up and if the market does get into trouble it is not clear how much leeway there will be for the Fed to cut rates. Although I imagine there would be a bailout whether from Mag7 or even government/central banks as tech companies have so much political power and have convinced the government that beating China to AGI is a matter of national security.

 

The broader pitch seems to me to be that AI can displace jobs and therefore deliver huge OPEX saving and the tech companies are no longer limited by corporate IT budgets because they can make inroads into wage budgets.

 

But AI isn't exactly free even if it appears to be because it is heavily subsidized to drive adoption and when something has a very low price then it is inevitable that demand is going to be incredibly high which is often used as an argument as to why the capex isn't irrational and we aren't in a bubble. And if everyone can use AI to reduce their costs and AI reduces the value of having an edge from being able to recruit highly skilled scarce labor then competition will drive down prices so it will be consumers who ultimately benefit. 

 

If this plays out like other bubbles then we will end up with overcapacity which will drive down the cost of compute which will be great for society but not so good for the first movers who funded the buildout. Then after the dust clears there will be companies who will take advantage of the cheap cost of commute and ubiquity of LLMs and build successful business models built around applying AI to solve real life problems. 

 

 

 

 

 

 

[ajlomb1011]

4 hours ago, mattee2264 said:

Space X prospectus does have a definite dot com/South Sea bubble whiff about it. 

 

Pivoting their entire business model towards AI. Target valuation of $1.5TR. Over 100 times sales. Claiming a TAM of $28TR. Compelling story of data centers in space and colonizing Mars etc. 

 

Of course Elon is Elon and Tesla has had an anomalous valuation for ages while the rest of the market was reasonably enough valued but if someone with his promotional instincts is choosing this summer to IPO then it is probably a warning sign. 

 

Then you have Anthropic and OpenAI as well all rushing to IPO. Also hugely money losing companies. And if IPOs go as planned they will represent 5% or so of the S&P 500 and that is a lot of equity issuance for the market to absorb. 

 

There is a lot of debt being issued relating to AI and interest rates are trending up and if the market does get into trouble it is not clear how much leeway there will be for the Fed to cut rates. Although I imagine there would be a bailout whether from Mag7 or even government/central banks as tech companies have so much political power and have convinced the government that beating China to AGI is a matter of national security.

 

The broader pitch seems to me to be that AI can displace jobs and therefore deliver huge OPEX saving and the tech companies are no longer limited by corporate IT budgets because they can make inroads into wage budgets.

 

But AI isn't exactly free even if it appears to be because it is heavily subsidized to drive adoption and when something has a very low price then it is inevitable that demand is going to be incredibly high which is often used as an argument as to why the capex isn't irrational and we aren't in a bubble. And if everyone can use AI to reduce their costs and AI reduces the value of having an edge from being able to recruit highly skilled scarce labor then competition will drive down prices so it will be consumers who ultimately benefit. 

 

If this plays out like other bubbles then we will end up with overcapacity which will drive down the cost of compute which will be great for society but not so good for the first movers who funded the buildout. Then after the dust clears there will be companies who will take advantage of the cheap cost of commute and ubiquity of LLMs and build successful business models built around applying AI to solve real life problems. 

 

 

 

 

 

 

You can’t apply logic to this situation!! The mag-7 and OpenAI/Anthropic will be worth $20 trillion dollars each! 
 

Your point about the buildout creating overcapacity is exactly what I’m thinking too. Chip companies, “neoclouds” memory companies, are all going to get smoked long term and are shitty places to put your capital. 
 

companies that spend virtually no money and are able to build products on this infrastructure will be the winners. People are acting like these behemoth companies can never fail, which is completely ridiculous. With the way they’re spending money right now there’s definitely a possibility of it happening. Meta is one of those companies and it’s a lot riskier than people think. 

[DegenerateGambler]

With inflation being persistent, I wonder if a hawkish Fed will eventually pop this bubble.  Margin Debt is now at 94% of Dot Com peak relative to total money supply.  When the AI trade unwinds we could see names down 30-50% if not more.  POET was at like 2000 times sales or something.  SpaceX IPO is at 100x times sales, maybe will mark market top moment.

[Spooky]

12 hours ago, mattee2264 said:

Space X prospectus does have a definite dot com/South Sea bubble whiff about it. 

 

Pivoting their entire business model towards AI. Target valuation of $1.5TR. Over 100 times sales. Claiming a TAM of $28TR. Compelling story of data centers in space and colonizing Mars etc. 

 

It's a little sad. I would have loved to own some Space X before it was merged into twitter and xAi as a pure play space exploration company (at a reasonable valuation of course).