Are We in a Stock Market Bubble?

Market Trends and Valuations - Nvidia's market cap has grown similarly to Cisco during the tech bubble, with a rapid increase reaching 100% of its peak value[1] - Nvidia's two-year forward P/E ratio is around 27, significantly lower than Cisco's 100 during the tech bubble, indicating more grounded near-term earnings prospects[2][17] - The Mag-7 (Magnificent 7) companies have driven over 80% of the gains in US equities since January 2023, now constituting over 25% of the S&P 500 market cap[15] Earnings and Growth Projections - The Mag-7 is discounting very high earnings growth, with projected earnings growth rates significantly elevated compared to historical averages[5][10] - Nvidia's earnings have grown significantly alongside its market cap, with actual orders validating continued growth expectations[17] Bubble Indicators and Sentiment - The current US equity market bubble gauge is at the 73rd percentile, suggesting elevated but not bubbly conditions[19] - Retail trading activity is at the 55th percentile, higher than typical but not excessively concerning[25] - Sentiment around AI is bullish, with over 35% of recent earnings calls mentioning AI, reflecting high expectations for growth[48][64] Leverage and Speculative Activity - Household margin debt has declined meaningfully from COVID-era peaks and is now near 10-year lows, indicating healthier leverage conditions[53][54] - Options activity in the Mag-7 is not excessively elevated, with turnover as a share of market cap not indicating a speculative frenzy[50][58] Forward Purchases and Capex - Forward purchases for the Mag-7 look frothy, with companies investing significantly in capex and R&D, reaching all-time highs as a share of GDP and sales[79][84][90]