Over the last three years, the S&P 500 has gone into overdrive — gaining roughly 26%, 25%, and 18% consecutively over the last three years. These numbers are well above the index’s 100-year average return of just 10%, and the outperformance can be credited to a new technology called generative artificial intelligence, which promises to transform the global economy.
That said, history tells us that periods of exceptional stock market growth are often followed by a mean reversion or underperformance as the market corrects its irrational exuberance. Investing legend Warren Buffett knows this well, and navigating these periods has been one of the keys to his exceptional long-term track record. Let’s dig into his strategy to see what lessons investors can apply to their own portfolios.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Why is the market soaring?
It’s hard to overstate the impact generative AI has already had on the world. According to Pew Research, around a quarter of Americans use AI chatbots daily, and that number will likely grow as the models become more mainstream and sophisticated. The business side of the equation is even more explosive, with an estimated 78% of companies globally already adopting the technology for at least one function.
Silicon Valley has responded to the megatrend by pouring unprecedented sums into acquiring and deploying the infrastructure needed to run and train the consumer-facing large language models (LLMs) that make AI possible. Capital spending is expected to exceed $1 trillion this year, and it is partly responsible for the market’s elevated returns by contributing to the growth of computer hardware giants like Nvidia and Micron.
In fact, analysts at Goldman Sachs believe AI is behind a whopping half of the S&P 500’s recent total earnings growth, highlighting how dependent the market has become on this one burgeoning industry.
The market is repeating a very alarming pattern
It’s generally not a good sign for the market to become overly dependent on one industry — especially considering the fact that much of the profits remain concentrated on the picks-and-shovels side of the opportunity. Meanwhile, consumer-facing companies like OpenAI continue to burn through cash, with the ChatGPT maker losing $3.7 billion in the first quarter of 2026, more than half its revenue of $5.7 billion.
