Is the Market Too Expensive? The Truth About AI and Today’s Stock Market

The market is expensive. You’ve probably heard that sentence more times this year than you can count. I know I have. It shows up in the headlines, on television, in YouTube thumbnails and at backyard barbecues. It’s become one of those phrases we repeat so often that we rarely stop to ask a simple question:What do we really mean by “the market”?

Because I think once you answer that question, the entire conversation changes.

You’re listening toThe Thoughtful Investorpodcast, brought to you by Yach Advisors in Southlake, Texas.

What Do We Mean by “the Market”?

Imagine standing at Churchill Downs on Derby Day. Five hundred horses are lined up at the starting gate. I know that’s absurd. Five hundred is a lot of horses. Bear with me. We’ll get through this analogy.

Some of the horses are champions. Some are newcomers. Some have been winning for years, while others haven’t had their moment in the sun. The race begins, but almost immediately the camera stops showing all 500 horses. They zoom in on a handful of the leading pack — let’s just say about seven to ten of them. The commentators analyze them. The headlines celebrate them. Before long, you almost forget the rest of the field exists.

If you’re following along, you know 500 was intentional, and you know seven to ten was intentional, because we’re talking about what most people think of when they think of the stock market:the S&P 500.

The Standard & Poor’s 500 sounds perfectly diversified, right? Five hundred of the largest companies in the U.S., representing every major industry and sector. Five hundred companies. But it’s also weighted by size, or market capitalization, which means not every company has the same influence.

As of July 2026, when this episode was recorded, the 10 largest companies made up roughly 36% of the entire index. Let me say that again. Because the S&P 500 is market-cap weighted, the 10 largest companies made up roughly 36% of the index. About 36 cents of every dollar put into the S&P 500 went into 10 companies.

One company alone, Nvidia, then the largest, made up about 7.5%.

Here’s an interesting note. It would take around 250 of the smallest companies in the S&P 500 to make up the market capitalization of Nvidia. And these aren’t tiny startups. Among those companies are household names such as Expedia, Hershey, Dr Pepper, Kraft Heinz, Halliburton, Hewlett Packard, T. Rowe Price and Clorox.

These are huge companies, yet together the market capitalization of roughly 250 of them barely equals one company.

That means when the largest companies have a spectacular year, it can feel like the market is unstoppable. When they struggle, suddenly everyone starts asking whether the market is in trouble. We may be asking about the economy while referencing the stock market, even though a large-cap-heavy portfolio is often reacting to the performance of a remarkably small group that has pulled away from the rest of the field.

Going back to Churchill Downs, we’re reacting to the performance of the top horses while much of the field receives far less attention.

Does a Total-Market Fund Solve the Problem?

You might think, fine, I’ll just buy a total-market index instead. That’s more stocks, so it should be better diversified. It certainly owns more companies. A broad U.S. total-market index can hold more than 3,700 stocks.

But here’s what’s fascinating: it’s still market-cap weighted, and nearly 89% of its value can be made up of the S&P 500. So if you buy a total-market index, roughly 90 cents on the dollar may still be invested in S&P 500 companies.

Those same mega-cap companies can still make up roughly a third of the entire fund. In other words, adding another 3,200 companies dramatically changes the number of holdings, but it changes the portfolio less than many people might assume.

Today’s Champions Aren’t Permanent

Think about this: what do you think the largest company in the S&P 500 was 15 years ago? It wasn’t Apple. It wasn’t Microsoft. It wasn’t Nvidia. It was Exxon Mobil, which held the top position for much of the period from 2005 until Apple overtook it around 2012.

That surprises a lot of people. Exxon Mobil remains a huge company, but today it represents a much smaller share of the index than it did when it was the market leader.

Go back another decade and you find names such as General Electric. Go back further and you find companies such as IBM. Each generation tends to believe its champions are permanent.

In the early 2000s, oil seemed indispensable. Industrial manufacturing seemed untouchable. Every generation has its defining innovation. Today, many people believe that innovation is artificial intelligence.

History has a way of reminding us that leadership is temporary. Companies change. Industries change. Consumer preferences change. Technology changes. Capital flows toward whatever appears capable of solving tomorrow’s problems better than today’s solutions.

That’s not a flaw in capitalism. That’s the entire point.

AI and the Dot-Com Comparison

If you only follow the headlines, you might think there are only two possible conclusions: either AI is the greatest investment opportunity of our lifetime, or we’re watching the biggest run-up since the dot-com bubble.

I don’t find either explanation particularly satisfying.

There are certainly similarities. Like the late 1990s, we’re witnessing a transformative technology attracting enormous amounts of capital. Companies are racing to build the infrastructure they believe will power the next generation of computing.

Back then it was fiber-optic networks and internet infrastructure. Today it’s data centers, advanced semiconductors, network equipment, and enough electricity and energy to power them all.

But that doesn’t necessarily tell us whether the earnings produced by this enormous investment will be sustainable. That remains to be seen, and the market has high expectations.

There are important differences, too. Many companies at the center of the dot-com boom had little more than a promising idea and a website. You’ve probably heard the phrase “garage startup” — the idea of starting what may become a multinational corporation from a garage or basement.

Today’s technology leaders are some of the most profitable businesses ever created. Microsoft, Apple, Alphabet, Amazon, Meta and Nvidia generate extraordinary cash flows, maintain strong balance sheets, and employ some of the brightest engineers in the world. They’ve already transformed the way billions of people live and work.

That isn’t optimism. It’s simply an acknowledgment of what these companies have already accomplished.

A Great Company Isn’t Automatically a Great Investment

But there’s another distinction investors sometimes overlook:a great company isn’t automatically a great investment.

You can own one of the best businesses ever created and still earn disappointing returns if you pay too much for it. Investing has never been only about buying wonderful companies. It’s about buying them at prices that leave room for reality to exceed expectations.

That’s why I think the more interesting question isn’t whether AI will change the world. It already has. The more difficult question is whether today’s stock prices already assume most of that success — or whether there is still value there.

Why Big Tech Is Spending So Much on AI

That’s why I find the current wave of AI investment so fascinating. Every major technology company is spending staggering amounts of money building data centers, buying chips, expanding power infrastructure, and racing to develop artificial intelligence.

It’s tempting to look at those numbers and conclude that everyone has lost their minds. I’m not convinced that’s what’s happening.

Imagine you’re the CEO of one of those companies. If artificial intelligence truly transforms the global economy and you fail to invest, history may remember you as the executive who missed one of the biggest technological shifts of the century.

On the other hand, if you invest too much, you may waste billions of dollars — but your company probably survives. One mistake is existential. The other is expensive.

Viewed through that lens, the race begins to make more sense. They can’t afford to be the only horse that stops running.

This reminds me of how mutual fund managers can end up tracking fairly closely to an index. Deviating too far creates the possibility of substantially underperforming peers. To outperform your peers, you have to accept the risk of being the outlier. But it can be easier to explain poor performance when everyone else is experiencing something similar than when you’re dramatically worse than the pack.

For a technology CEO, there is a similar incentive to remain competitive in investment in these technologies.

The Better Question: What’s Already Priced In?

History also offers a useful reminder. Transformational technologies often change the world. Railroads changed America. Electricity transformed industry. Oil and gas fueled America. The internet reshaped nearly every aspect of modern life.

But while those technologies became indispensable, not every investment associated with them produced extraordinary returns.

Sometimes too much capital rushes into a promising idea. Sometimes expectations outrun reality. The technology succeeds while investors who paid the highest price are forced to wait years for the fundamentals to catch up.

That’s why I think the question,“Are we in a bubble?”is probably the wrong question. The answer will be revealed in time.

A more interesting question is:What expectations are already built into today’s prices, and will the investment ultimately pay off?

If artificial intelligence delivers decades of productivity gains, today’s investments may look brilliant. If those gains arrive more slowly than investors expect, the businesses themselves may continue thriving while their stocks struggle to justify the optimism already priced in.

If AI ultimately fails to monetize the way investors expect, valuations could fall substantially even if the underlying companies remain high-quality businesses with strong earnings and promising futures.

Those are very different outcomes.

The Race Never Ends

As investors, it’s tempting to spend our time trying to identify the next champion — to predict which horse will win the race. History suggests that’s an incredibly difficult game, and it comes with plenty of pitfalls.

The better lesson may be simpler:the race never ends.

Capitalism keeps going. Yesterday’s champions become today’s incumbents, and today’s incumbents eventually make room for tomorrow’s innovators. Rather than assuming today’s winners will dominate forever, I think it’s wiser to remember that markets are constantly reinventing themselves.

That’s what they’ve always done. And if history is any guide, that’s what they’ll continue to do.

Why Diversification Exists

That’s also one of the main reasons diversification exists.Diversification isn’t an admission that you don’t know anything. It’s an acknowledgment that the future is bigger than your certainty.

One of my favorite illustrations of this is the periodic table of investment returns. If you’ve never seen it before, it almost looks random. Every year, the colors reshuffle. Large-cap stocks lead one year. International stocks lead another. Small companies have their turn. Real estate has its moment. Bonds and cash can become the strongest performers during difficult markets.

Yesterday’s winner often becomes tomorrow’s laggard, and yesterday’s disappointment sometimes becomes tomorrow’s leader.

The lesson is that a disciplined investment strategy starts with preparing for a range of outcomes and not getting caught up in the news cycle.

I know that’s boring. You’ve got to be boring. If you want to be a good investor, you have to be the tortoise, not the hare.

The market has never stood still. It didn’t stop with railroads, electricity, oil, the internet or AI, and it won’t stop with whatever comes next. The names will change. The leaders will change. The headlines will change. But the principles of successful investing rarely do.

You cannot control what happens next. As an investor, you want to put your time and energy into the things you can control. Build a diversified portfolio. Follow a thoughtful plan. Stay disciplined in a world that is noisy.

Meet with a financial advisor if this isn’t something you want to do yourself. Make sure that person is acting as a fiduciary and has your best interests in mind. Make sure the investments you own aren’t simply speculative positions, but are broad enough to prepare for different outcomes.

Ask the question:What happens if the market does this?Ask what the conversation sounded like during 2008, when markets were volatile, and what that conversation might sound like the next time volatility arrives at this stage in your life.

I want to make sure I have a plan designed to give me the best chance of success regardless of what happens in the market — regardless of whether AI monetizes the way the market currently expects.

If you enjoy this perspective, consider subscribing. Here we focus less on predicting what’s next and more on understanding the principles that have stood the test of time, because markets will always surprise you.But a good plan doesn’t have to.

I’m Bryan Yach, Wealth Advisor and owner of Yach Advisors. Thank you for joining.

Bryan Yach, CFP®, is a Wealth Advisor and owner of Yach Advisors. Yach Advisors provides comprehensive financial planning and investment management designed around the lives, goals and priorities of the families we serve.