A top Wall Street economist is sounding the alarm on sky-high valuations in AI stocks — and drawing comparisons to the tech bubble of the late 1990s.
“Yes, AI will do incredible things for all of us,” Torsten Sløk, chief economist at Apollo Global Management, said on Yahoo Finance’s Opening Bid. “But does that mean I should be buying tech companies at any valuation?” (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
According to Sløk, the answer is increasingly no. In a research note to clients this week, he pointed to internal data showing the price-to-earnings ratios (P/E) of the 10 largest companies in the S&P 500 (^GSPC) — many of them AI stock picks like Meta (META) and Nvidia (NVDA) — have eclipsed P/E levels seen at the height of the dot-com bubble in 1999.
That signals a dangerous concentration of investor exposure in just a handful of tech giants, Sløk argued.
“Almost 40% of the S&P 500 is made up by the 10 largest companies,” he said. “So if I take $100 as an investor and buy the S&P 500, I think I have exposure to 500 different stocks, but I’m really just betting on the Nvidia and the AI story continuing.”
In his note, Sløk noted that the current valuations in megacap tech stocks, and the index as a whole, may not be sustainable. His concerns echo a growing unease on Wall Street over how much of the recent stock market rally is driven by AI euphoria and momentum trades.
BTIG analysts flagged similar warning signs in a note this week, describing market sentiment as “frothy” and raising the possibility of a near-term pullback in high-flying AI names.
Their focus was on the BUZZ NextGen AI Sentiment Index, a benchmark of AI-related stocks popular with retail investors. The index is up 45% over the past 16 weeks and trading 29% above its 200-day moving average. According to BTIG, both are the highest since early 2021, when speculative tech stocks peaked.
“Can it get more so like it did in ’20-’21? Of course,” BTIG analyst Jonathan Krinsky wrote. “But tactically, this feels a bit extreme to us.”
Krinsky also warned that the index’s top holdings, including Rocket Lab (RKLB), Coinbase (COIN), and Unity Software (U), are showing “vertical” chart patterns and are increasingly vulnerable to “short-term shakeouts.”
The note suggests that investors consider rotating into more defensive sectors, such as utilities or even Chinese tech, which has been consolidating for months.
Together, the Apollo and BTIG notes point to a growing split in the market between long-term optimism around AI’s potential and near-term concerns that valuations and concentration have gone too far, too fast.
Francisco Velasquez is a Reporter at Yahoo Finance. He can be reached on LinkedIn and X, or via email at francisco.velasquez@yahooinc.com.
Click here for the latest technology news that will impact the stock market
Read the latest financial and business news from Yahoo Finance
