Rational or Irrational\u00a0Exuberance?<\/h2>\n
\n \t\tNovember 4, 2025 at 2:59 pm<\/a><\/em>\n\t\t \t\t \t\t<\/p>\n The government may be shut down, but the stock market hasn\u2019t noticed. In fact, stocks just capped another record-breaking month. The S&P 500 gained +2.3%, the NASDAQ climbed +4.7%, and the Dow rose +2.5%.<\/p>\n Millions of Americans are feeling the downside of the shutdown\u2014from disrupted travel to stalled services and furloughed workers. Historically, such uncertainty rattles Wall Street. This time? Investors seem more captivated by the transformative promise of artificial intelligence (AI).<\/p>\n So, the key question today: Is this AI-driven exuberance rational\u2014or irrational?<\/p>\n Exuberance Then vs. Exuberance Now<\/strong><\/p>\n Having invested for more than 35 years, I\u2019ve seen periods of euphoria and fear. I vividly remember December 1996 when Fed Chair Alan Greenspan famously questioned whether markets were becoming \u201cirrationally exuberant.\u201d Back then, the NASDAQ sat near 1,300. Over the next three years it soared past 5,100 (almost quadrupling), only to crash nearly 80% by 2002.<\/p>\n But here\u2019s the twist: it\u2019s true, we did experience a \u201ctech bubble burst\u201d, but where is the NASDAQ index value today? Amazingly, the index stands at 23,000 (see chart below<\/mark><\/a>) \u2013 an 18x increase above the 1996 level when Greenspan gave his irrational exuberance speech! So, in hindsight, the sound we heard during 2000 was not the tech bubble bursting but rather an internet Big Bang! The internet wasn\u2019t a speculative fad\u2014it was the foundation of a global transformation.<\/p>\n So, what about AI?<\/p>\n Source:\u00a0<\/strong>Macrotrends LLC<\/em><\/p>\n Internet Cycle vs. AI Supercycle<\/strong><\/p>\n The internet era lifted the number of online users from zero to five billion\u2014over 60% of the planet (see chart below). The AI wave kicked off publicly in November 2022 with ChatGPT\u2019s release. In under three years, the NASDAQ has more than doubled. That pace isn\u2019t sustainable forever, of course. Bubbles form, emotions swing, and markets correct. But dismissing AI as a fad ignores its unmistakable\u2014and accelerating\u2014impact.<\/p>\n Source:<\/strong>\u00a0BOND \u2013 Mary Meeker<\/em><\/p>\n With the rapid appreciation in the stock market, it\u2019s important for investors to identify and understand the warning signs of potential bubble bursting or market crash. In fact, I continue to do my part by studying past crashes.\u00a0My shipment of Andrew Ross Sorkin\u2019s book,\u00a01929: Inside the Greatest Crash in Wall Street History<\/mark><\/a>\u00a0<\/em>just arrived and all these lessons remind us that not all booms are bubbles, and not all crashes end innovation.<\/p>\n Not All Bubbles are Created Equal<\/strong><\/p>\n Major market drawdowns are part of a long-term investor\u2019s journey:<\/p>\n Many pundits today are now asking is this AI surge the next bubble? Valuations, as measured by P\/E ratios (Price\/Earnings), suggest a very different setup than in 2000.<\/p>\n Back then, many tech leaders traded at 100x+ earnings. Today\u2019s Magnificent Seven tech leaders are elevated, but nowhere near dot-com extremes:<\/p>\n *Source:\u00a0MarketSurge \u2013\u00a0<\/em>only Tesla, Inc. (TSLA) has a P\/E higher than 100x.<\/p>\n For the S&P 500 overall, the index has a forward P\/E of 22.8x (Yardeni Research<\/em>), significantly lower than 2000 levels and nowhere near bubble territory.\u00a0<\/p>\n Source:<\/strong>\u00a0Wall Street Journal \u2013 March 14, 2000<\/em><\/p>\n Life After the Internet and Life After AI Introduction<\/strong><\/p>\n Think back 25 years:<\/p>\n Today, those activities feel prehistoric. AI is set to reshape daily life on an even faster timeline \u2014 from medicine and logistics to entertainment and marketing.<\/p>\n I\u2019m discovering \u201cAI epiphanies\u201d weekly.<\/p>\n And when it comes to investing? Evaluating biotech companies used to take weeks. Now, detailed research can be synthesized in days without sacrificing rigor. AI isn\u2019t replacing insight \u2014 it\u2019s amplifying output.<\/p>\n Not All AI Stories Are \u201cUnicorns and Rainbows\u201d<\/strong><\/p>\n AI boosts productivity. Higher productivity means some companies need fewer people. Amazon recently announced\u00a0<\/mark>14,000 layoffs<\/mark><\/a>\u00a0<\/mark>despite reporting amazing financial results. Microsoft and Meta have also announced thousands of employee layoffs even as profits rise.<\/p>\n This isn\u2019t doom and gloom \u2014 it\u2019s innovation cycles in action. Technology displaces tasks before ultimately creating new industries and roles.<\/p>\n So\u2026 Rational or Irrational?<\/strong><\/p>\n Although there has been much debate regarding whether we are in an AI bubble, from my perspective, we are in the very early innings of a long AI revolutionary game. There are definitely pockets of frothiness that expose investors to undue risk, but if you can follow a disciplined, diversified, valuation-sensitive investment strategy, like we implement at\u00a0Sidoxia Capital Management<\/mark><\/a>, I feel that the current exuberance is more rational than irrational.<\/p>\n www.Sidoxia.com<\/mark><\/a><\/p>\n Wade W. Slome, CFA, CFP\u00ae<\/strong><\/p>\n Plan. Invest. Prosper.<\/em><\/p>\n This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (Nov. 3, 2025).\u00a0Subscribe Here<\/mark><\/a> to view all monthly articles.<\/p>\n DISCLOSURE:\u00a0Sidoxia Capital Management (SCM) and some of its clients hold positions in NVDA, AAPL, MSFT, GOOGL, AMZN, META, TSLA, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC\u00a0Contact page<\/mark><\/a>.<\/p>\n \n\t\t\tEntry filed under: Behavioral Finance<\/a>, Earnings<\/a>, economy<\/a>, Financial Markets<\/a>, Financial Planning<\/a>, Government<\/a>, inflation<\/a>, International<\/a>, Stocks<\/a>, Trading<\/a>. Tags: ai<\/a>, ai stocks<\/a>, bubble<\/a>, economy<\/a>, exuberence<\/a>, Federal Reserve<\/a>, finance<\/a>, investing<\/a>, irrational exuberance<\/a>, NASDAQ<\/a>, Politics<\/a>, Sidoxia<\/a>, stock market<\/a>, Stocks<\/a>, tech stocks<\/a>, Wade Slome<\/a>.\t\t<\/p>\n<\/p><\/div>\n\n","protected":false},"excerpt":{"rendered":" Rational or Irrational\u00a0Exuberance? November 4, 2025 at 2:59 pm The government may be shut down, but the stock market hasn\u2019t noticed. In fact, stocks just capped another record-breaking month. The S&P 500 gained +2.3%, the NASDAQ climbed +4.7%, and the Dow rose +2.5%. Millions of Americans are feeling the downside of the shutdown\u2014from disrupted travel […]<\/p>\n","protected":false},"author":1,"featured_media":319744,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[96],"tags":[45938,79996,10906,43458,84611],"dealstore":[],"offerexpiration":[],"class_list":["post-319743","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-caffeine","tag-exuberance","tag-investing","tag-irrational","tag-rational"],"yoast_head":"\n![\"\"](\"https:\/\/investingcaffeine.com\/wp-content\/uploads\/2025\/11\/party.jpg?w=873\")
<\/a><\/figure>\n![\"\"](\"https:\/\/investingcaffeine.com\/wp-content\/uploads\/2025\/11\/nasdaq-96-25.jpg?w=588\")
<\/a><\/figure>\n![\"\"](\"https:\/\/investingcaffeine.com\/wp-content\/uploads\/2025\/11\/giu.png?w=867\")
<\/a><\/figure>\n\n
\n
![\"\"](\"https:\/\/investingcaffeine.com\/wp-content\/uploads\/2025\/11\/unsustain-values.jpg?w=462\")
<\/a><\/figure>\n\n
\n
\n
\n