Current investor enthusiasm has led to U. S. stock prices being about 45% above what I believe to be a fair trading range. Even with certainty that artificial intelligence (AI) will revolutionize life akin to electricity, stocks seem overvalued. Since the public launch of ChatGPT on November 30, 2022, stock prices in the U. S. technology and communication services sectors have approximately doubled, despite profit growth not justifying such a rise. The premium on technology shares is partly justified by their potential to boost productivity and profits, but recently, large-cap tech stocks in the S&P 500 Index are significantly overpriced—up to 80% higher in price-to-trailing earnings ratios and over four times higher in price-to-sales compared to the rest of the market. Additionally, overvaluation isn't isolated; AI-related shares and optimistic pricing in various market segments have driven the U. S. stock market to its most overvalued level since early 2001, as per a proprietary Vanguard valuation measure. While no market-timing tools are effective, the market habitually swings between overvaluation and undervaluation.

Vanguard research indicates that disruptive technologies tend to spur initial investor euphoria followed by disappointment, similar to the late 1990s, when the tech boom led to a dramatic market decline despite subsequent transformation of the economy by the Internet. Although the future of AI is promising, it hasn’t reached its full potential yet. For the AI boom to materialize, adoption rates must increase and businesses need to effectively use the technology. Vanguard anticipates AI's peak influence on productivity and economic growth in the 2030s. For now, expectations for earnings growth over the next few years are overly optimistic. Even if AI reshapes the economy, the most significant benefits might be outside the tech sector. Companies across all industries could experience productivity gains comparable to a scenario where millions of retirees remain in the workforce. Consequently, AI will likely benefit businesses globally, not just those in Silicon Valley. Additional commentary from Fortune emphasizes varied economic insights and individual perspectives, reflecting solely the views of their authors.