While Retail Investors Are Bullish on AI Stocks, Famed Investor Warren Buffett Retired Being Bearish. Will the Stock Market Crash or Rally in 2026?

Retail investors are intelligibly bullish connected artificial quality (AI) stocks arsenic the caller twelvemonth begins. In The Motley Fool's 2026 AI Investor Outlook Report, 90% of investors polled said they volition bargain oregon clasp AI stocks this year. However, that's a decidedly antithetic position connected the banal marketplace than legendary capitalist Warren Buffett.

Buffett spent his past twelvemonth moving Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), trimming positions and stockpiling cash. Buffett has mostly eschewed exertion stocks, though Apple has go his largest presumption implicit the years. However, helium has spent astir of the past fewer years importantly reducing that involvement portion not buying overmuch of anything. In fact, implicit the past 12 quarters, Berkshire has sold much banal than it has bought each quarter.

More recently, that hesitancy to bargain has extended to his ain stock, arsenic Berkshire has not repurchased immoderate of its ain shares since Q2 of 2024. Given its deficiency of banal buybacks and equity purchases, Berkshire ended Q3 with a grounds $381.7 cardinal of currency connected its equilibrium sheet.

While Berkshire did adhd a presumption successful Alphabet successful Q3, these actions are intelligibly being made by idiosyncratic who thinks the marketplace is importantly overvalued. And determination are surely immoderate valuation metrics that backmost up Buffett's position. One of Buffett's favourite indicators arsenic to whether the marketplace is overvalued is taking the full U.S. banal marketplace capitalization (market cap) and dividing it by the country's gross home merchandise (GDP). In fact, this is commonly referred to arsenic the Buffett Indicator. It presently sits astatine 222%, which considers the banal marketplace considerably overvalued. A ratio betwixt 111% and 135% is viewed arsenic reasonably valued.

There are different metrics that besides constituent to the marketplace being overvalued. The S&P 500's (SNPINDEX: ^GSPC) trailing price-to-sales (P/S) ratio precocious deed an all-time level of 3.3 times, much than treble its semipermanent median of 1.6 times. The Shiller P/E (CAPE) ratio, which measures the existent worth of the S&P 500 scale and divides it by the index's 10-year inflation-adjusted earnings, is besides astatine utmost levels, close astir 40 times. That's lone the 2nd clip this metric has climbed supra 40, and the different clip was earlier the dot-com bubble burst.