Since its launch in 2010, the Vanguard S&P 500 ETF (NYSEMKT: VOO) has returned 814%, or a little over 15% per year. Not too bad for a boring, broadly diversified index fund!
But that’s in the past. How the fund looks as an investment going forward depends on the growth outlook for the index’s components and the relative value of the current share price. After all, the best investment in the world might not be worth it if it’s too expensive.
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That’s one of the issues facing the S&P 500 (SNPINDEX: ^GSPC) right now. And it affects the attractiveness of the Vanguard S&P 500 ETF as an investment.
Valuations are becoming a concern
The forward price/earnings (P/E) ratio of the Vanguard S&P 500 ETF is currently at around 21. That’s well above its long-term average but actually lower than where it’s been for much of the past five years.
Given the sharp revenue and earnings growth fueled by the AI boom, this fundamental measure isn’t the biggest concern. But the Shiller CAPE ratio, which measures current prices against inflation-adjusted earnings over the past 10 years, is nearing an all-time high.
Right now, the Shiller CAPE ratio is at 42.84 (as of June 2, 2026). That’s nearly the same level that was hit during the peak of the tech bubble, when it reached 44.19 in November 1999. The current ratio is also far higher than it was during the Great Depression, the financial crisis, and every bull and bear market in between.
Artificial intelligence (AI) capex spending is currently driving huge revenue and earnings growth from the tech sector, but it’s also potentially stretching stock prices to historically expensive levels. As we saw during the tech bubble a quarter-century ago, these manias can end very badly.
The AI boom’s parallels to the tech bubble
The similarities in today’s environment and 2000 shouldn’t be lost on investors, either.
Both periods were marked by revolutionary new technologies — the internet in 2000, AI today. Both also saw huge capital spending plans to ramp up development. Both featured boom periods in which the stock prices of almost every company tied to the theme rose sharply.
There is one big difference, though. The AI boom is producing meaningful revenue and earnings growth. The internet boom certainly featured its share of long-term winners, but many companies went bust quickly despite huge market caps. I don’t believe a similar level of excess exists today as it did during the internet boom. But the Shiller CAPE ratio suggests that stock market valuations have gotten way over their skis.
