The S&P 500's Shiller CAPE ratio has risen to a level last seen during the dot-com bubble, signaling a potential market downturn. The CAPE ratio, which measures the index's price relative to its 10-year average inflation-adjusted earnings, is approaching its 2000 peak and stands well above its long-term average. The last time the ratio reached this height, the Nasdaq Composite subsequently plunged 77% from its peak by October 2002. Analysts note parallels between the internet infrastructure build-out of the late 1990s and current heavy spending by large tech companies on AI chips and data centers. While some AI stocks trade at elevated valuations, several Magnificent Seven members funding the AI build-out remain closer to their historical averages, though their free cash flow is declining as they take on debt.
