The S&P 500 has climbed 118% since its October 2022 low as AI spending draws investors in. Buffett's approach favors patience, while leaving room to question what each company is worth.
A selloff would leave worried AI-stock investors with another hard call: when to buy back in. Warren Buffett has long argued that investors should judge businesses and accept price swings rather than try to predict the market's next move.
That distinction matters after a rally often compared with the dot-com boom. Staying invested does not guarantee smooth returns, and history cannot tell investors what AI stocks will do next. It does show why timing both an exit and a return can be harder than riding out volatility with a diversified portfolio.
At a market capitalization approaching $6 trillion on October 6, Nvidia represented more than 8% of the S&P 500, according to figures cited by CNN.
The market's rapid climb
Since the bear market bottomed on October 12, 2022, the S&P 500 has risen 118%. The Nasdaq Composite has gained 165%. The rally roughly coincided with ChatGPT's public launch in November 2022. AI demand has helped drive investment in data centers, while semiconductors and power infrastructure have also drawn spending. That timing alone does not prove AI caused every market gain, but the technology has become a major focus for investors.
Nvidia's rise to become the world's most valuable company is one visible sign of that enthusiasm. The concern is familiar: if expectations outrun what companies can earn, valuations can fall sharply. Yet a call that a downturn is coming does not say when it will arrive, or how long the rally might run first. On October 6, the S&P 500 rose 0.58% to about 7,819. The Nasdaq gained 0.45% to a record 27,599.79. Reuters' market report also put Nvidia's market value near $6 trillion that day.
Reuters reported that high AI-company valuations rest on expectations of major productivity gains and future profits for which empirical evidence and historical parallels remain limited. JPMorgan estimated that U.S. economic productivity would need to grow about 3% to 5% annually over the next decade to justify Nvidia's current valuation.
Buffett's case against timing
In a CNBC interview in March 2009, Buffett said he could not predict where the market would bottom. He could not forecast what it would do the next day or week, or over a month or a year. At Berkshire Hathaway, his approach has instead centered on estimating a business's worth and deciding whether its current price could support attractive returns over many years.
That framework does not rely on short-term forecasts being right. An investor who sells because a crash seems imminent still has to make another difficult call: when to re-enter. Getting both decisions right consistently is a much higher bar than recognizing that markets sometimes fall.
Investors looking to manage portfolio swings without moving everything to cash can compare approaches in this ETF risk comparison. None can prevent losses or forecast a downturn.
What the dot-com record shows
The dot-com collapse makes the danger of buying at a peak plain. It also shows why the holding period matters. The S&P 500 reached 1,527 on March 24, 2000, then fell to 777 by October 9, 2002, a decline of about 49%. The index did not surpass its old high until May 30, 2007.
By comparison, the index now stands around 7,800, roughly five times its dot-com peak level. That compares index levels; it does not promise future returns or account for inflation and dividends. Investors who bought near the peak still had to endure the dot-com bust. The global financial crisis came next, followed by the Covid-19 crash and the 2022 bear market, before the index reached that much higher level.
Patience still needs discipline
A broad-market recovery does not rescue every company. Many speculative internet businesses disappeared after the dot-com crash. An index can replace failed firms, but an individual shareholder cannot. Diversification reduces dependence on one company. Investors choosing individual stocks still need to assess valuation and competitive advantages. Balance sheets matter, as do management and cash generation. That concentration remains relevant: Nvidia fell nearly 3% on October 7 as the AI trade retreated. The Nasdaq dropped 1.25% to 27,193.34, while the S&P 500 lost 0.47% to 7,765.36. CNBC reported that pressure intensified after reports that OpenAI's annualized revenue run rate was below previously indicated targets.
Buffett's lesson calls for more than a blanket instruction to hold everything. A durable business can still be a poor investment if its price assumes too much growth. A promising technology does not make every company tied to it financially sound. Investors should scrutinize earnings and business quality alongside the risk of falling prices. Analysts surveyed by LSEG expected S&P 500 earnings to grow more than 30% year over year in the coming quarter. They expected AI-linked companies to contribute substantially. That was a consensus forecast, not a confirmed result.
