Summary of Key Points
The U.S. stock market in 2026 is embroiled in a "divided debate": on one hand, there are warnings from traditional financial indicators (such as Buffett's indicator and Shiller's CAPE ratio) that valuations are too high; on the other hand, there are expectations of "structural changes in the future" brought about by the AI revolution. The core question is whether the current high valuations of U.S. stocks represent an overestimation of the future (a bubble) or an early pricing of a technological revolution that could transform the nation's fortunes.
Detailed Analysis
1. Traditional Valuation Indicators Warn of Danger: What Do These Measures Really Mean?
Let's break down the technical terms into simpler language:
- Buffett Indicator: The total market value of the stock market divided by a country's annual GDP. In simple terms, it's the ratio of "how much the stock market is worth" to "how much the country produces in a year." This ratio has now exceeded 220%, which is much higher than the historical average and even close to the level during the 2000 internet bubble—suggesting that the stock market may be detached from the support of the real economy, resembling a castle in the air.
- Shiller's CAPE Ratio: This measures the average earnings of companies over the past decade and then calculates the price-earnings ratio (stock price divided by earnings). This approach helps to filter out short-term fluctuations in earnings and provides a better reflection of long-term valuations. Currently, it exceeds 40 times, one of the most expensive ranges in 150 years—indicating that stock prices are ridiculously high relative to the actual profitability of companies.
- Market Concentration Risk: The top 10 companies in the S&P 500 account for 40% of the market value, so the performance of the index depends entirely on these tech giants. If something goes wrong with them, the entire market could collapse.
The conclusion based on traditional frameworks is clear: U.S. stocks are currently too expensive, and the likelihood of making profits in the future is decreasing.
2. AI Disrupts the Valuation Logic: Has the "Denominator" of Future Valuations Changed?
AI is not just another ordinary technology; it's a "general-purpose technology"—like electricity or the internet—capable of penetrating all industries (production, services, research, defense). This disrupts traditional valuation models:
- Time Frame Has Changed: In the past, investors looked at how much companies would earn in the next 3-5 years when buying stocks. With AI, however, the future earnings structure of companies could be completely restructured over 10-20 years (for example, through cost-saving automation or new revenue generated by generative AI). As a result, investors are using longer time frames to determine prices.
- Strategic Importance: The U.S. Department of Energy's "Genesis Project" links AI to national security and technological competitiveness. Data centers and computing networks are no longer just ordinary corporate investments but have become "strategic infrastructure" for the country. In this context, the value of stocks includes a bet on the country's future competitiveness.
In short, AI has completely changed people's expectations about future earnings, making traditional valuation methods ineffective.
3. Historical Experience: Valuation Models Always Fail During Major Technological Revolutions
Looking back at history, valuations become unpredictable at the beginning of each major technological revolution:
- When railways first appeared, investors invested heavily, and railway companies were valued excessively high. However, railways later transformed the entire economy.
- In the early days of the internet, many companies had no profits but were still overvalued. After the bubble burst, true giants (such as Google and Amazon) emerged and reshaped the world.
The common factor in these cases is that it's not the valuation models that are wrong; rather, the uncertainty about the future is too great—no one knows how much change technology can bring. AI is particularly unique because its potential for productivity improvement is uncertain, the capital investment required is enormous (e.g., the $500 billion invested in the StarGate project), and it's closely tied to national security. Therefore, there are two opposing views in the market: some argue for a "return to average valuations," while others suggest "repricing the future."
4. Two Possible Futures: Bubble Burst or Bet on National Fortunes?
The current U.S. stock market is at a crossroads:
- **Scenario One: AI Is a "Pseudo-Revolution": If AI only leads to minor efficiency improvements (not a disruptive change like electricity), then the current high valuations are a bubble. In the future, either company earnings will fail to keep up with expectations, or stock prices will fall, and since the market is concentrated in a few companies, the decline could be severe.
- **Scenario Two: AI Is a "True Revolution": If AI truly becomes an essential infrastructure like electricity, then the current large-scale investments (e.g., Microsoft and Amazon's AI spending) are laying the foundation for future production systems. In this case, investors are betting on whether the U.S. can maintain its global leadership with AI.
The outcomes of these two scenarios are vastly different: one could result in losses, while the other could lead to huge profits.
5. The Essence of the Debate: Is AI the Next "Power Source"?
表面上, the debate is about whether valuations are too high, but it actually revolves around two core questions:
- Can AI truly transform human production and lifestyles in the same way as electricity or the internet?
- Can the U.S. seize this AI revolution to maintain its global leadership in technology and economics?
If the answer is yes, then the current high valuations represent an early discount on the future; if not, valuations will eventually return to historical averages.
There is no definitive answer to this question; only time will tell—just as no one could have predicted how the internet would develop.
Final Conclusion
The current high valuations of U.S. stocks represent a gamble about whether AI can reshape the world. If successful, it will mark the beginning of the next internet era; if not, it will just another bubble bursting. We can only wait for time to reveal the outcome.