AI frenzy triggers fear of a stock market bubble in the US! Goldman Sachs speaks out: Although market enthusiasm is high, we are still far from the historical bubble extremes.

The rapid rise in US stocks driven by the AI boom has raised concerns among investors that market enthusiasm may reach unsustainable levels, but Goldman Sachs Group, Inc. stated that several key indicators are still below extreme levels seen during past market bubbles. Goldman Sachs Group, Inc. strategist Ben Snider and his colleagues stated in a report released last Friday that the S&P 500 index has risen by 13% since the end of March, making it one of the fastest rallies in decades. Before last week's pullback, the benchmark index had risen by 15% in two months, placing it in the top 99% of historical returns since 1980. This rise is closely related to market enthusiasm for AI-related stocks such as Micron Technology, Inc. (MU.US) and momentum trading strategies, prompting investors to question whether the US stock market is rising too quickly. The report stated, "Speculative fever is not a good timing indicator, but it is one of the typical features of previous overvalued, highly concentrated bull market peaks." Fever indicators are rising, but below historical extremes Goldman Sachs Group, Inc. analyzed four categories of nine indicators: stock prices, trading activity, investor sentiment, and corporate sentiment. The bank found that the current median rankings of these indicators since 1995 are in the 86th percentile historically. In comparison, these indicators reached 100% historical extremes during the dot-com bubble period, and also touched 95% percentile at the market high in 2021. The report noted that market breadth has significantly narrowed, indicating that a few stocks are driving most of the market's gains. However, Goldman Sachs Group, Inc. stated that the current market concentration is still below the levels seen during the late 1990s tech bubble. The bank said that unlike previous speculative rallies, the recent rise has been largely supported by improving earnings expectations. Market consensus earnings per share for the S&P 500 index have risen by 16% so far this year, exceeding the index's 8% increase. Goldman Sachs Group, Inc. continues to expect strong earnings growth for companies, forecasting earnings per share of $340 for the S&P 500 index in 2026, up 24% from 2025. Mixed trading activity signals The bank's speculative trading indicator has risen in recent months but remains below the levels seen during the dot-com bubble and the 2021 market rally. The indicator tracks trading activity of unprofitable companies, low price stocks, and stocks with high valuation multiples. Among these, trading activity for high valuation stocks is particularly active. Goldman Sachs Group, Inc. stated that the trading level of stocks with an enterprise value/sales ratio exceeding 10 times is close to its highest level in decades, second only to the situation in 2000. Meanwhile, short positions are still at unusually high levels. The median short position of S&P 500 component stocks accounts for 3.2% of their market value, the highest level since the 2008 financial crisis, far higher than the levels seen during the market highs in 2000 and 2021. Goldman Sachs Group, Inc. stated that these data suggest that investors' skepticism is stronger than what many sentiment indicators show. Mixed investor sentiment still exists Goldman Sachs Group, Inc. stated that investor sentiment indicators based on surveys show mixed trends. The latest survey from the American Association of Individual Investors shows that slightly more respondents are bearish than bullish, with 37% of respondents saying they are bearish and 36% saying they are bullish. This contrasts with the Yale University Stock Market Confidence Index, which is close to the levels seen at the market highs in 2000 and 2021. Goldman Sachs Group, Inc.'s own US stock sentiment indicator recently recorded 0.2, the lowest reading since early April this year. Meanwhile, Wall Street strategists have differing views on the market outlook. Data from Goldman Sachs Group, Inc. shows that the target range for the end of 2026 for the S&P 500 index is between 7181 and 8250 points. Equity issuance activity heats up Corporate activity has also rebounded, but Goldman Sachs Group, Inc. stated that the current situation is far from the excessive levels seen at past market highs. The bank expects the dollar value of US equity issuance in 2026 to reach a historical new high. However, the proportion of equity issuance to total market value is expected to remain close to the average levels seen from 2015 to 2019. Goldman Sachs Group, Inc. also expects demand for corporate stocks, including stock buybacks, to continue exceeding supply this year. While initial public offering activity has improved, it is still relatively subdued. The number of IPOs this year is expected to be roughly in line with the long-term average of 100 per year, far below the nearly 400 IPOs completed in 1999. Goldman Sachs Group, Inc. stated that while all typical characteristics of major market tops have not yet appeared, some warning signs have become more apparent: IPO activity is rebounding, corporate profit margins are under pressure from rising costs, and financial markets have recently digested expectations of a possible increase in interest rates by the Federal Reserve, although Goldman Sachs Group, Inc. economists believe that the likelihood of additional rate hikes is low. Overall, the bank concluded that while investor enthusiasm has risen, it has not yet reached the levels seen at past speculative market peaks.