If you’ve been with Stocks.News for a while, you know we’re not in the business of doom and gloom. Screaming “the sky is falling” like that Simpsons old man yelling at clouds doesn’t make much sense when the market keeps printing new all-time highs. But every so often, it’s worth pausing to call out the obvious red flags.

Case in point: Warren Buffett’s favorite stock market thermometer (the Buffett Indicator) just ripped into holy-sh*t territory at 218%. That’s the highest level ever. Higher than the Dotcom madness of 2000. Higher than the meme-stonk carnival of 2021. Higher than a Willie Nelson-Wiz Khalifa smoke session on Snoop Dogg’s tour bus.

Back in 2001, Buffett called this ratio “probably the best single measure” of market valuations. It’s actually pretty straightforward really: you take the Wilshire 5000 (all U.S. public companies) and divide it by America’s gross national product. When the ratio is around 70-80%, stocks are BTFD cheap. When it creeps toward 200%? Buffett warned you’re playing with fire. Well, at 218%, the house isn’t just on fire… the fire department is as well.

(Source: CNBC)

And you’ll never guess the driver behind the wheel… (seriously, you might want to sit down for this) Mega-cap tech. AI has investors forgetting how to do basic math. Microsoft, Apple, Nvidia, Google, Meta… they’re all plowing billions into artificial intelligence projects. And Wall Street has rewarded them with valuations that are hard to believe. The S&P 500’s price-to-sales ratio just hit 3.33, an all-time high. For reference, the Dotcom bubble peaked at 2.27. Post-COVID topped out at 3.21. So to say we’re out over our skis is a colossal understatement.

Some investors argue the Buffett Indicator doesn’t hit like it used to. The U.S. economy isn’t smokestacks and steel mills anymore. It’s SaaS logins, data centers, and “intangible assets.” GDP and GNP don’t always capture the full value of tech-driven growth, so maybe higher equity multiples are justified. Of course, that’s what they said in 1999 right before every .com stock took a dirt nap.

Buffett himself hasn’t talked about this indicator in years, but his actions speak louder. Berkshire Hathaway is sitting on a $344.1 billion cash hoard and has been a net seller of stocks for 11 straight quarters. If he thought stocks were cheap, would he really be hoarding cash like a Depression-era grandma hiding silverware?

At 218%, you can tell yourself we’re entering a golden age where tech valuations make sense, or you can admit we’re standing in a gasoline lake holding a match and calling it a hot tub (not a pretty picture). Sure, the Buffett Indicator might not be perfect anymore, but paired with Buffett’s own Atlantic ocean-sized pile of cash, it’s just another sign that we might be ready for a correction soon.

At the time of publishing this article, Stocks.News holds positions in Microsoft, Google, Apple, and Meta as mentioned in the article.