Navigating the Nasdaq in Late 2025
Really there is no doubt that we are in an AI-fueled surge in valuations and market concentration and the real question here is what to do. How long is it responsible to hang on and how do we mitigate the risk while still taking advantage of what could be very profitable late-stage appreciation?
The Bear Case: The Metrics Scream Bubble
I’ve long had a list of the things to watch out for after getting burned with some combination of selling too soon or hanging in too long in 2000, 2008 and 2021 especially. When I remember those periods, I think of things like compressed deal terms, multiples through the roof and a VC I know well saying, “oh there’s no need to do due diligence – Tiger did pre-due diligence so we are good to go.” I also think of when people who obviously are frauds or just are way out of the model of who is normally successful are being lauded from every media outlet and you just know it’s bs – SBF and Theranos quickly come to mind, but there are so many others. I don’t really see those warning signs now, though I am starting to wonder how much more we have to go and whether taking some profit now and / or switching to diversified and perhaps non-US holdings might be warranted.
Real Concerns
Sky-High Valuations: The simplest metric, the price-to-earnings (P/E) ratio, is elevated. The forward P/E for the Nasdaq 100 is sitting well above its 10-year average. Investors are paying a premium for future growth, which is a classic late-cycle signal.
The Schiller P/E (CAPE Ratio): The Cyclically-Adjusted Price-to-Earnings Ratio, which smooths earnings over a 10-year period to account for business cycles, is at a level that has preceded nearly every major market crash in US history. In late September 2025, the CAPE ratio crossed 40, which has not been seen since early 1999 and exceeds the highs of 27 from both 2007 and 1929. I should add the the late 90s bubble finally crashed in March 2000 with a CAPE ratio of 43.77.
The Buffett Indicator: Warren Buffett's favorite macro valuation tool, the ratio of total stock market capitalization to GDP, is also extremely elevated and out of a normal range.
With a current reading hovering near 190%, it's significantly above the historical average, suggesting stock prices have become detached from economic reality.Extreme Concentration: The market's gains are not broad-based. A handful of tech companies are responsible for nearly all of the index's returns. This concentration is a double-edged sword; while their strength has propelled the market up, a stumble from just one or two of these giants could be a very large mess to clean up
The Bull Case
Acknowledging the risks is crucial, but so is seeing the whole picture. Several powerful catalysts are providing fuel for this rally that simply didn't exist in past bubbles (ugh I know how that sounds).
Real Earnings, Not Just Greed Based on Nothing: The late 90s dot-com bubble was built on speculative companies with no profits and flimsy business plans. The 2025 AI boom is being led by some of the most profitable, cash-rich companies in world history. NVIDIA is selling billions of dollars worth of chips with massive margins. The productivity gains from AI are starting to show up in the earnings of companies across the board, justifying higher valuations and the sense that we are in the early stages of the AI boom is probably right.
Major Policy Tailwinds: The political landscape is providing a surprisingly stable runway for growth. The Trump administration's recent successes have opened new doors for US tech that should deliver growth for years to come:
The Transatlantic Trade & Tech Accord (TTTA): The landmark trade agreement ensures historic structural reforms that will benefit the US economy for the long term and it will specifically solidify the European market for US tech giants, promising a new wave of stable, long-term revenue. Europe also promised to invest $600B in direct investments into the US economy with an additional purchase of 750B in US energy exports through 2028 with significant commitments to purchase US military equipment.
American Energy Policy Unleashed: the administration has made significant investments and regulatory improvements with the aim of providing abundant domestic energy production for the coming years. This crucial policy focus should allow for the AI technology boom to pay off in the coming years.
A Thawing with China: While not a done deal, talks of a "Phase Two" trade agreement are progressing. The positive rhetoric alone has eased fears of a renewed AI / tech cold war. A potential deal focused on intellectual property and market access would be a monumental catalyst for chipmakers, software companies, and hardware manufacturers.
Rate cuts still coming: While nothing is certain there is no reason to doubt the guidance that we will get two more rate cuts in Q4 2025. Inflation seems well under control and the economy is nearly at full employment, so the Fed should stay on track to return to lower rates that will further stimulate equity markets.
Investor Playbook for Late 2025 & Early 2026
So, how do you invest in a market that feels both unstoppable and on the verge of collapse?
Stay Invested, But Stay Smart: Pulling out of the market entirely means you'll potentially miss out on what could be the best appreciation for decades. I clearly remember the 18 months after Alan Greenspan declared a bubble being the best in memory. In fact, after he said the words “irrational exuberance” in late 1998, the NASDAQ rose 85.6% in 1999 before giving it all back after March 2000.
Focus on quality. Stick with the profitable tech leaders who have wide moats, strong balance sheets, and real earnings. Avoid the speculative, companies that have yet to turn a profit and be wary of new IPOs.
Rebalance and Diversify: Take some of those profits and reallocate them to sectors that have been left behind. There is a reason that people quote Bufett saying “diversification is protection against ignorance.” Industrials, financials, and even high-quality healthcare stocks look relatively cheap and could appreciate if the economy continues to hum along. This maneuver is responsible and hedges against a tech-specific downturn.
Embrace Dollar-Cost Averaging (DCA): Whether the market is at an all-time high or in a dip, consistently investing a fixed amount of money each month is a proven strategy. If the market keeps rising, you're still buying in. If it dips, your fixed dollar amount buys more shares at a cheaper price, lowering your average cost. DCA removes emotion from the equation.
Keep Some Powder Dry: Don't be fully invested. Holding a slightly larger-than-usual cash position (perhaps 5-10% of your portfolio) isn't about timing the market perfectly. It's about having the liquidity and psychological readiness to buy when others are panicking.
Ultimately, all I can say is good luck and if you need the lifestyle chips, now would be a fine time to take some off the table.