By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel largely agrees that the current high P/E ratios, exemplified by AMD and SHOP, pose significant risks, with stagflation being a key concern. They suggest a balanced approach that includes liquidity, defensive stocks, and valuation discipline.
Risk: Stagflation risks compressing high P/E multiples, particularly for growth stocks like AMD and SHOP.
Opportunity: Maintaining liquidity and owning defensive stocks like CLX can provide some protection in a downturn.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Now is not a time to sell winners.
Keeping some cash on hand could pay.
Be open to opportunities no matter the state of the overall market.
As the market indexes hover near all-time highs, investors appear optimistic, as stocks tied to areas such as artificial intelligence (AI) continue moving higher.
Nonetheless, such moves may worry long-term investors. The Shiller price-to-earnings (P/E) ratio, which averages earnings over a 10-year period adjusted for inflation, is now at around 42. The only other time it reached that level was during the dot-com boom, and as many long-term investors know, that gave way to a dot-com bust.
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That history has me concerned. Although I'm not giving up on the stock market, I'm making three moves that I think will protect me should the worst happen.
Leaving my highfliers alone may seem counterintuitive. I own AMD (NASDAQ: AMD), whose P/E ratio is over 140 at recent prices, and Shopify (NASDAQ: SHOP), whose P/E ratio is pushing 100 even amid concerns that AI threatens the business models of many software companies.
However, I still believe in the long-term theses of these underlying businesses. With regard to AMD, the company's growth prospects appear to support investors' enthusiasm, as its revenue growth rate closely approximates the 35% annual target over the next three years. In Shopify's case, it has built a nearly comprehensive e-commerce ecosystem. Thus, it will probably take more than an AI application to disrupt that business.
Moreover, history shows that holding to such beliefs over the long term. Perhaps one of the better examples is Amazon (NASDAQ: AMZN). Although it's up by almost 279,000% since its 1997 IPO, it lost more than 90% of its value during the dot-com bust before its comeback, bringing massive returns that more than make up for any failed investments.
Although enduring those sell-offs can be difficult emotionally, history shows that it pays to keep the faith in a solid investment thesis.
Second, I'm keeping significant liquidity on hand. That includes cash and iShares Gold Trust (NYSEMKT: IAU), a gold-tracking stock that I hold as an inflation hedge and can convert to cash quickly.
Here I'm following the example of Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB). As Warren Buffett was getting ready to retire as CEO, he built a record liquidity position now topping $397 billion, more than the company's current $329 billion in reported holdings.
Buffett spoke of the virtues of buying in down markets. In such times, holding a massive liquidity position may mean that Berkshire, now run by Greg Abel, is gearing up for such an opportunity.
Assuming a downturn occurs, investors will be able to buy bear market stocks at a significant discount. Ultimately, we have no way of knowing when the next bear market will arrive or how severe it will be. That doesn't mean one will find Amazon selling at a 90% discount again, but a sell-off should make more of the market's top businesses trade at attractive prices.
More importantly, investors should remember that every previous bear market eventually ended. That positions long-term investors to benefit because the bear market occurred, and investors should probably position themselves to reap such rewards.
Despite the high valuations, investors can find stocks to buy in this market. Many stocks don't move with the economy, so they can make great investments at the height of a bull market and could rise even as the overall market plunges.
For example, there's my contrarian take on Clorox (NYSE: CLX). I see it as a high-yield dividend stock with a cash return of around 5.6%, far above the 1.1% average for the S&P 500. It also has a history of annual payout increases, and its P/E ratio of 14 is less than half of the average 32 P/E ratio.
Admittedly, no individual stock is risk-free, and Clorox -- whose revenue has grown at an annualized rate around 2% over the past decade -- is not for everyone. Nonetheless, it serves as a reminder that investors should always be on the lookout for a buying opportunity.
The market is near record levels, and that leaves some investors wondering what to do. While history shows that bear markets happen eventually, we don't know how long the current bull market will continue.
However, an impending bear market is not a reason to give up on the stock market. As long as investors let winners win, hold some available cash, and always looks for opportunities, they can be in a position to win in the long term, no matter what happens next in the market.
When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 983%* — a market-crushing outperformance compared to 207% for the S&P 500.
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Will Healy has positions in Advanced Micro Devices, Berkshire Hathaway, Clorox, Shopify, and iShares Gold Trust. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Berkshire Hathaway, and Shopify. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"Valuation multiples are currently elevated, but comparing today's cash-generative tech leaders to the speculative bubble of 2000 is a fundamental analytical error."
The author’s reliance on the Shiller P/E of 42 is a classic 'valuation trap' argument that ignores the structural shift in corporate margins and the asset-light nature of modern S&P 500 leaders. While holding liquidity is prudent, comparing current conditions to the 2000 dot-com bubble ignores that today’s tech giants generate massive free cash flow, unlike the speculative startups of that era. Holding AMD at 140x P/E while simultaneously buying Clorox for a 'defensive' 5.6% yield creates a barbell portfolio that likely underperforms in a sustained bull run. Investors should focus on the quality of earnings rather than just the multiple, as a high P/E is justified if the CAGR of AI-driven revenue remains above 30%.
The Shiller P/E is a mean-reverting metric that historically signals long-term disappointment; ignoring it because 'this time is different' is the most expensive phrase in finance.
"Shiller P/E at 42 demands trimming frothy names like AMD/SHOP now, not blind conviction, as mean-reversion risks dwarf historical drawdown recoveries."
Author's defensive playbook—hold AMD (140x P/E, banking on 35% rev growth), SHOP (100x P/E, e-com moat), stay liquid like Berkshire's $397B cash pile (vs. $329B holdings), buy CLX (14x P/E, 5.6% yield vs. S&P 1.1%)—is sensible for long-term tilt but underplays near-term catalysts for pain. Shiller P/E ~42 echoes dot-com peaks, where most 'winners' vaporized permanently, not just dipped 90% like AMZN. Missing: hyperscaler AI capex plateau risks (AMD vulnerable to Nvidia dominance), persistent 4-5% rates compressing growth multiples, CLX's stagnant 2% rev growth post-cyber issues. Liquidity buys time, but no substitutes for valuation discipline.
AI's real earnings trajectory (Nvidia's 200%+ YoY beats) could drive productivity boom sustaining high multiples, unlike dot-com's earnings-free hype; Amazon wasn't luck but first-mover execution.
"The article's advice to 'hold winners' and 'buy dips' is sound, but the underlying thesis—that current valuations are defensible—rests on AI delivering growth rates that have rarely materialized in tech history."
The article conflates two separate problems: valuation risk (Shiller P/E at 42) and portfolio construction advice. The author's three moves are reasonable hedging tactics, but they don't actually address whether 42x Shiller P/E is justified. AMD at 140x P/E and SHOP at 100x P/E aren't 'long-term holds'—they're binary bets on execution. The Amazon comparison is survivorship bias: most dot-com survivors didn't recover. Holding 5.6% CLX while owning 140x-multiple AMD is incoherent risk management. Berkshire's $397B cash isn't 'gearing up'—it reflects Buffett's inability to deploy capital at acceptable returns, which itself signals market froth.
If AI truly is a structural productivity shift (not a bubble), then today's valuations on NVIDIA, AMD, and SHOP could be rational, and the author's defensive posture looks like market-timing disguised as prudence. The Shiller P/E comparison to dot-com ignores that 2024 earnings are real and profitable, unlike 1999 vaporware.
"Valuations are stretched now, and while secular AI growth can sustain earnings, the near-term risk is a meaningful multiple compression and drawdowns in high-P/E names if rates surprise to the upside or earnings falter."
The piece cautions about froth but still leans into three bets: ride winners (AMD, SHOP), stay liquid (cash + IAU, Berkshire), and hunt bargains (Clorox). The strongest missing context is valuation regime risk: Shiller P/E around 42 signals stretched markets, but that metric isn’t a timing signal and can stay high in an AI-driven growth regime. High flyers like AMD at P/E >140 and SHOP near 100 show the risk of sharp multiple compression if rate dynamics or cash-flow disappointments surface. Gold as inflation hedge and Berkshire liquidity are sensible, but they don’t guarantee downside protection in a liquidity-driven drawdown or a rotation away from hype names.
The countercase is that AI-driven earnings growth, cloud demand, and buybacks could justify premium multiples for longer than skeptics expect; Shiller P/E can remain elevated in structurally higher earnings regimes, so the near-term risk of a meaningful drawdown may be overstated.
"High valuations are a rational response to systemic currency debasement rather than just speculative froth."
Claude is correct that Buffett’s $397B cash pile is a signal of valuation exhaustion, not just 'prudence.' However, the panel is ignoring the fiscal dominance factor. With US debt-to-GDP at 120%, the government is incentivized to inflate away liabilities, which structurally supports high P/E ratios for assets with pricing power. We aren't in 1999; we are in a regime where liquidity-driven debasement makes 'expensive' tech stocks the only viable store of value against currency erosion.
"Fiscal dominance amplifies stagflation risks that will compress high-multiple growth stocks before any debasement benefits materialize."
Gemini, fiscal dominance via 120% debt-to-GDP may inflate nominal prices temporarily, but it heightens stagflation risks—persistent 3-4% inflation forces Fed hikes amid weak productivity gains outside Big Tech. This crushes AMD's 140x P/E and SHOP's 100x far more than defensives like CLX thrive. Panel overlooks how 2022's rate shock already compressed multiples 50%+; no 'store of value' if real yields spike to 3%.
"Fiscal dominance doesn't protect 140x P/E multiples in a stagflation scenario—it accelerates their compression."
Grok's stagflation scenario is the real blind spot here. Gemini assumes fiscal dominance = perpetual liquidity, but stagflation (3-4% inflation + weak productivity outside Big Tech) doesn't inflate AMD's earnings—it compresses them while rates stay sticky. The 2022 playbook repeats: multiple compression hits first, duration matters second. CLX's 2% revenue growth looks worse, but AMD's 140x P/E collapses faster in that regime. Neither inflation nor deflation rescues overvalued growth.
"High multiples justified by fiscal dominance require durable earnings and cash flow; without that, policy risk and rate moves can compress valuations in AMD/SHOP even if liquidity remains."
Gemini's link between fiscal dominance and high P/E multiples ignores policy risk. If inflation expectations re-anchor or real yields rise, earnings visibility becomes king—multiples compress even for pricing-power names. 120% debt-to-GDP doesn't guarantee pricing power; it can backfire via currency depreciation and tighter financial conditions. So beyond liquidity, investors still need durable earnings, capital allocation discipline, and a credible path to free cash flow to justify rich valuations in AMD/SHOP.
The panel largely agrees that the current high P/E ratios, exemplified by AMD and SHOP, pose significant risks, with stagflation being a key concern. They suggest a balanced approach that includes liquidity, defensive stocks, and valuation discipline.
Maintaining liquidity and owning defensive stocks like CLX can provide some protection in a downturn.
Stagflation risks compressing high P/E multiples, particularly for growth stocks like AMD and SHOP.