The stock market may be in a bubble that rivals the one seen during the dot-com boom.
That's according to Torsten Sløk, the chief economist of Apollo Global Management, who said on Wednesday that the top firms in the S&P 500 are "more overvalued" than the top companies during the peak of the internet stock craze in the late 1990s and early 2000s
The top 10 names in the benchmark index are trading at a 12-month forward price-to-earnings ratio of around 25, according to Sløk's analysis. That suggests companies are priced at a slightly higher premium than they were two decades ago, he wrote in a note on Wednesday.
"The difference between the IT bubble in the 1990s and the AI bubble today is that the top 10 companies in the S&P 500 today are more overvalued than they were in the 1990s," Slok wrote.
Talk of a bubble has been on the rise for years on Wall Street, ever since the debut of ChatGPT at the end of 2022 set off a frenzy for AI in the stock market.
The market has all the ingredients for a stock bubble, with the exception of a more dovish Federal Reserve, strategists at UBS wrote in a note last week. Once the central bank resumes cutting rates, the conditions for a bubble should all be present, the bank said.
"We up the probability of a Bubble scenario to 25% for end-2026 and acknowledge a risk that this is too low," the strategists wrote.
In early July, Citi said it believed stocks would continue to outperform, thanks to an AI bubble forming in equities.
"Our hunch would be a possible bubble in AI related stocks may well only peak around half a year before the capex spent in USD peaks," analysts wrote, referring to capital expenditures related to AI.
In June, market veteran Ed Yardeni said he believed the market could be entering "melt-up mode," a state in which stocks see a rapid rise that proves to be ultimately unsustainable.
"It's a bit hard to believe, but the main risk at this time may be a stock market meltup, i.e., a speculative bubble," he wrote, pointing to the S&P 500 notching a fresh record that month.
