The Buffett Indicator, which calculates the ratio of market cap of all U.S. publicly traded stocks to the country’s gross domestic product, is at the highest level in several decades, according to research from Kailash Capital Research. As of November 2024, the figure reached 230%, the highest on record, according to Kailash’s data. That type of market dynamic hasn’t been seen since March 2000 around the time the dot-com bubble burst. Back then, the market-to-GDP ratio had reached a record level of 175%.

Still, though market cap-to-GDP is instructive, it is not a perfect metric because it fails to account for the fact that many companies in the U.S. stock market sell their goods and services abroad, according to BCA Research chief strategist Dhaval Joshi.

“The one slight flaw or problem with the measure is that if the companies in the market cap [total] are global companies, which of course they are, then it’s a sort of a mismatch because you’re looking at the market capitalization of global companies versus U.S. GDP, effectively total sales in the United States,” Joshi said.

Malgari and his coauthor, Sanjeev Bhojraj, conceded this is a valid criticism and that running the same analysis on a global scale would illuminate whether these market dynamics are the new normal for the global economy or an aberration specific to the U.S.

However, they said the criticism also reinforces their overall point that these companies are overvalued; just as global trade can provide tailwinds, so too can it provide headwinds. Many of the largest firms—especially in tech—face fierce competition from companies in other parts of the world that could threaten their dominance. For example, Tesla and Apple’s main competitors are BYD and Huawei, two companies from China, Bhojraj noted.

“If you really think about a global economy, you should also be thinking about global competition,” he said.

Malgari and Bhojraj feel the evidence is clear. “Others are welcome to continue fighting with arithmetic truths, but we are not,” the two wrote in their report.

Though, there are some key differences between the current state of the market and that of years past. The financial might at the very top of the market, such as the Magnificent Seven megacap tech stocks, is unprecedented. For example, Apple generated over $108 billion in free cash flow in fiscal 2024 and, as of its latest earnings report, Alphabet had $93 billion in cash on hand.

“The technology companies tend to have really strong balance sheets and really earnings are quite stable and not as cyclical as in the past,” said Jose Torres, senior economist at Interactive Brokers, a brokerage firm in Greenwich, Conn.

Torres added that technology is now much more integrated into all facets of life, having been widely adopted by both people and companies. For tech companies at least, they have ample room to continue growing.

“Technology is becoming a significant growth driver, while back then it was just starting,” Torres said. “Now it’s sort of in everything we do so that, for that reason, this level of concentration isn’t as worrisome as in the past.”

The advent of AI would seem to only strengthen the hands of the major tech companies that drive much of the soaring valuations. Still, Buffett warned back in 1999 that a specific technology boom wouldn’t automatically translate into stock market gains. At the time, he pointed to two revolutionary technologies of the 20th century as evidence: automobiles and airplanes. By 1999, roughly a century after their invention, they had not yielded a noteworthy stock market darling, despite how widespread the technologies were.

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage,” Buffett said.

Investors will ask AI companies what they previously did of airplane and car manufacturers: turn gargantuan investments into even larger profits, according to Malgari. “It’s actually almost a perfect analog because somebody has to figure out how to make huge returns on capital to justify what’s going on right now,” he said.

As the Buffett Indicator continues to creep up, Buffett’s conglomerate Berkshire Hathaway exited some of its most profitable investments in single companies such as Bank of America and Apple, building up a historically large cash position in the process.

That has some investors wondering if the Oracle of Omaha does, in fact, know something they don’t.