Goldman Sachs has cautioned that while the current stock market rally exhibits echoes of previous fashion of the bubbles in the 90s, it has not yet reached that territory. The investment bank’s view was outlined in a recent note from Peter Oppenheimer, the firm’s chief global equity strategist.
Goldman’s analysis highlights several factors reminiscent of past market booms, such as surging valuations, narrowing market leadership, and growing capital intensity. Additionally, the spread of vendor financing within the artificial intelligence sector has drawn comparisons to the late-1990s tech bubble. However, Oppenheimer noted critical distinctions between the current environment and previous bubbles.
Typically, market bubbles arise when the aggregate value of companies developing new technologies far outpaces the realistic cash flows those firms can generate—an imbalance that the current AI-driven surge has not demonstrated, according to Oppenheimer.
The ongoing AI rally has been dominated by established tech giants, including Nvidia, Microsoft, and Google. There has yet to be evidence of the kind of explosive competition that often precedes unsustainable speculative episodes.
The report points out that the five largest U.S. technology firms now surpass the combined market value of the EURO STOXX 50, the UK, India, Japan, and Canada. In total, the top ten U.S. stocks—eight of which are classified as technology firms—account for nearly a quarter, 24.5%, of the global equity market, a combined worth of approximately $25 trillion.
Such high concentration has spurred some investors to question whether current market dynamics represent rational valuation or classic bubble behavior. Nevertheless, Goldman argues that today’s rally is grounded in robust fundamentals, in contrast to the irrational growth expectations that fueled earlier episodes such as the dot-com era. The report underlines the strong balance sheets of leading AI and cloud firms, a resilience that many companies during the 1990s tech surge lacked.
Despite this more favorable backdrop, Oppenheimer acknowledged that valuations within the technology sector are “becoming stretched.” The note references several valuation metrics, including price-to-earnings and price-to-book ratios, that signal rising risk levels. Still, these indicators have not yet reached the extremes observed in the dot-com bubble or the late stages of the 2020-2021 tech rally.
While the market’s current strength appears supported by fundamentals, Oppenheimer advises investors to remain vigilant. He recommends diversification beyond the largest technology names, citing intensifying competition in the AI sector and the likelihood of a new generation of tech leaders emerging as innovation accelerates.
