Investing legend Rob Arnott says the S&P 500 is concerningly expensive. Here are 2 areas of the market where he's looking for bargains.

Group 1 - The founder of Research Affiliates, Rob Arnott, is impressed by the capabilities of AI chatbots, noting that they can produce high-quality summaries of complex papers [1] - Despite the impressive performance of AI chatbots, Arnott is cautious about investing in AI stocks, believing that much of the future upside is already reflected in current prices [2][6] - Arnott identifies two main concerns regarding AI stocks: increasing competition in the chip-making sector and the unclear monetization strategies for AI technology users [3][4] Group 2 - Arnott highlights that major companies are heavily investing in AI, leading to historically high stock valuations, with the total US stock market capitalization relative to GDP at an all-time high [4] - The Shiller cyclically-adjusted price-to-earnings ratio is currently around 38, marking its third-highest level in history, indicating overvaluation in the market [5] - Arnott prefers small-cap value stocks and emerging market value stocks over expensive AI stocks, suggesting that there are better investment opportunities outside of the S&P 500 [6][7]