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Getting older sucks and I don’t like it at all.

My hair is thinning. I don’t wake up at 1:45 a.m. every day with the same burning energy to obsess over markets and stocks. I should eat red meat three times a month “just because” it’s what people have told me is right at this point in life.

From what I can tell, one of the only positive aspects of getting older is the experience.

And my experience analyzing and reporting on markets and leaders for more than a decade tells me that investors have been completely immersed in an AI-driven technology bubble.

To be fair, this looks like a very different bubble than the cannabis and cryptocurrency bubbles of years past, as tech giants like Nvidia (NVDA) and Microsoft (MSFT) have real business models for making money. Their leaders are not inexperienced fools either (see the cryptosphere bad actors of the last two years).

But make no mistake: we are in a bubble and it could end badly at some point.

Here are some of the elements I see supporting this view.

Table of Contents

Everything recovers, but should it?

Nvidia shares rose 15% last Thursday after the earnings. The report also sent the broader market soaring.

Nvidia’s rivals AMD (AMD) and Arm (ARM) posted strong bids. Yahoo Finance’s new ticker Super Micro Computer (SMCI) soared 36%. Even Intel (INTC) took advantage of some tailwinds for Nvidia. And shares of Meta (META), which has been a leader in buying Nvidia chips, also soared.

Doesn’t this all seem crazy and resemble blind buying by FOMO traders?

In a normally functioning market, Nvidia’s surprising performance is bad news for competitors like AMD and Intel. Nvidia is selling more chips, which means fewer sales opportunities for its rivals. Shouldn’t its shares fall?

Just because Meta owns and uses some new Nvidia chips, how will that positively impact its earnings and cash flow over the next four quarters? Will it be at all?

The thing is, investors are acting irrationally as Nvidia delivers eye-popping financial numbers and the hype machine descends on social media. It makes sense until it doesn’t, and that’s classic bubble action.

Justify inflated valuations

Still not convinced this is an AI-driven tech bubble?

Then look at Wall Street’s typical action of justifying ever-higher stock valuation multiples.

The technology's price-earnings multiples are high.  Is this the creation of an AI-driven bubble?

The technology’s price-earnings multiples are high. Is this the creation of an AI-driven bubble?

“At 29 times our calendar year 2024 estimate (earnings per share), Nvidia trades at a lower multiple than peers Intel and AMD,” one analyst wrote in a note following Nvidia’s earnings stampede. “We find the valuation compelling. Nvidia remains a top pick.”

I’m not saying that Nvidia shouldn’t be valued at a premium in the market; I’m not saying that at all, so don’t trash me over email.

What I’m asking you to do is deconstruct the above comment, which is increasingly infiltrating tech coverage.

The analyst, in this case, has rationalized that 1) the high price multiples for slower-growing Intel and AMD are fine because AI is very hot, or so it seems, and 2) Nvidia stock is worth trading at a premium of around 33% to an already rich P/E multiple on the S&P 500.

Nvidia’s valuation isn’t surprisingly compelling considering earnings estimates have been raised through the roof! This is a technology stock priced at absolute perfection.

But hey, within a technological bubble anything goes, right?

Thinking you can’t be stopped

Nothing says “investment bubble” more than unbridled confidence. It’s that feeling that any stock you buy (at any price and at any time) will only go up forever. This will make you feel like an investing genius and inclined to take more risks.

Here is a dose of information that shows overconfidence spreading through the markets.

Traders’ confidence in their own decision-making, consistent with optimism, just hit the highest level since Charles Schwab began its Trader Sentiment survey, the financial services firm said this week. From a sector perspective, traders are most bullish on the information technology sector (surprise). They are very bullish on AI stocks in particular (surprise).

News flash: you are not an investing genius. The best thing you can do now to increase your wealth is to realize that it is time to lay the foundation to begin protecting your wealth created by the technology bubble.

Lean on your investment experience and all its aspects.

Brian Sozzi is the executive editor of Yahoo Finance. Follow Sozzi on Twitter/X @BrianSozzi and in LinkedIn. Advice on deals, mergers, activist situations or anything else? Send an email to brian.sozzi@yahoofinance.com.

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By Sam