By Paul R. La Monica

Yes, there is undeniably some froth on Wall Street. But investors need not worry about a massive stock market bubble.

It actually looks like the speculative mania might be concentrated to the big tech/artificial intelligence trade, as well as gold and other precious metals. That means there are still pockets of value in the wider market.

For one, consider that the Invesco S&P 500 Equal Weight exchange-traded fund currently trades for just 16 times earnings forecasts for 2026, a 20% discount to the market-value-weighted S&P 500 that is dominated by Nvidia, its Magnificent Seven peers, and Broadcom. That's bigger than the ETF's five-year average discount of about 25%.

The equal-weighted S&P 500 is up just 3% over the past 12 months, compared with the cap-weighted index's gain of more than 13%. Bespoke Investment Group analysts pointed out in a report Friday that more than 43% of stocks in the S&P 500 are oversold, while just 21% are overbought.

"The average large-cap stock is now basically flat over the last year. That sure doesn't sound like a 'bubble,' does it?" the Bespoke analysts wrote.

They also noted that since the current bull market began three years ago, the surge in the price of gold has far exceeded the rise for large-cap stocks.

"Incredibly, gold has blown away the stock market over this period with a gain of 154% compared to the 95% move for the S&P. Maybe there is a bubble out there, but it's not in stocks?" the Bespoke analysts wrote.

Yes and no. The bubble might not be in the stock market writ large. But it's getting harder to deny that the AI trade isn't looking "irrationally exuberant," if you will.

Leon Gross, an analyst with S3 Partners, noted in a report this week that the big gain for the Global X Artificial Intelligence & Technology ETF, which is up about 30% this year, "echoes the dot-com era, when companies added '.com' or '.net' to their names to attract capital -- a textbook case of thematic investing fueled by perception over substance."

Several other AI ETFs have popped, too. The Roundhill Generative AI & Technology ETF, which trades under the ticker symbol of CHAT, has soared more than 55% while the Invesco AI & Next Gen Software ETF is up nearly 25%.

And then there's the relatively new Dan IVES Wedbush AI Revolution ETF, which features picks from the popular Wall Street analyst and tech bull. Tesla, Taiwan Semiconductor Manufacturing, Alphabet, Apple, and Nvidia are top holdings.

The IVES fund has jumped more than 30% since its inception in early June, compared to a 5.5% gain for the equal-weighted S&P 500 during the same time frame. Gold has surged 26% since then as well. So if you're looking to avoid areas where sentiment is overly ebullient, steer clear of metals and AI stocks. The rest of the market doesn't seem too inflated just yet.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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October 17, 2025 14:12 ET (18:12 GMT)

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