The figure eclipses the peaks of both the dot-com bubble and the COVID-19 bull market, when the ratio topped out near 190%.
What the Buffett Indicator Measures
The Buffett Indicator compares the Wilshire 5000 Index — which tracks the total market capitalization of all publicly traded U.S. companies — against U.S. Gross National Product (GNP). In simple terms, it gauges whether the stock market is growing faster than the economy itself.
Buffett famously warned in 2001 that when the ratio approaches 200%, investors are "playing with fire." By that standard, today’s 218% reading suggests valuations are in uncharted territory.
Tech Giants Fuel the Surge
The latest spike has been driven largely by mega-cap technology companies, which have poured billions into artificial intelligence projects. Investor enthusiasm for AI has pushed valuations to record highs, with multiples expanding well beyond historical averages.
Other valuation tools are flashing similar signals. According to Bespoke Investment Group, the S&P 500’s price-to-sales ratio recently hit 3.33, surpassing its dot-com era peak of 2.27 and even the 3.21 level reached in 2021 before valuations cooled.
Is the Indicator Still Relevant?
Some analysts argue the Buffett Indicator may be less relevant in today’s economy. The U.S. has shifted from an asset-heavy industrial model to one dominated by technology, software, and intellectual property. Traditional measures like GDP and GNP may understate the true value of a data-driven economy, making higher stock valuations more justifiable.
Still, the sheer scale of the current reading has caught the market’s attention. Even if the indicator is imperfect, it highlights how far stock prices have run relative to the broader economy.
Buffett's Own Moves Signal Caution
Interestingly, Buffett himself has not commented on the indicator in years. But his actions may speak louder than words. Berkshire Hathaway (BRK.A, BRK.B) has been hoarding cash, reporting a record $344.1 billion in cash holdings in its Q2 2025 report. The company has also been a net seller of stocks for 11 straight quarters, suggesting Buffett is wary of current valuations.
At the same time, Berkshire is preparing for a leadership transition to Greg Abel, adding another layer of uncertainty for investors watching how the firm positions itself in a frothy market.
Investor Takeaway
- The Buffett Indicator at 218% signals valuations well above Buffett’s own "danger zone."
- Tech giants and AI investments are the primary drivers of the surge.
- Other metrics, like the S&P 500 price-to-sales ratio, confirm the market looks stretched.
- Buffett’s cash-heavy stance suggests caution, even if the indicator itself is debated.
The Bottom Line
Whether or not the Buffett Indicator is the perfect tool for today’s economy, its record high is hard to ignore. Combined with Berkshire Hathaway’s defensive positioning, the message for investors is clear: markets may be entering overheated territory, and caution could be warranted.