MW Wall Street veteran who called the dot-com bust sees a bigger bubble in Magnificent 7
By Barbara Kollmeyer
Richard Bernstein says lots of companies have growth to match Big Tech
The tech AI stock obsession will hurt investors down the road, argues RBA's Richard Bernstein.
Wall Street veteran Richard Bernstein, who correctly warned of a tech bubble back in March 2000, is "shaking his cane" hard these days.
The risk for those investors is an an extremely narrow market, dominated by just a few tech stocks, the CEO and chief investment officer of Richard Bernstein Advisors told the Meb Faber Show in a just-aired interview."And so my argument would be that's where the risk is," he said, in our call of the day. And while he said his firm may be bearish on 10 to 25 stocks, the broader stock market is "actually quite attractive."
He said investors need only look at the valuation gap the S&P 500 versus its equal-weighed index XX:SP500EW - forward price-to-earnings ratio of 24 versus 14, according to FactSet data.
Bernstein argues Magnificent 7 companies are less unique than investors think. "There are plenty of companies in the U.S. and around the world that are growing as fast, if not faster, than the Magnificent 7s. So that's what makes a bubble," he said, adding that during the dot-com bubble, the average S&P 500 company was actually growing earnings 30%.
Fast forward and he finds it tough to understand why investors care so much about the Mag 7 when they have a "broad range" of companies growing fast if not faster. "So there's lots of competition and competition for growth should be putting downward pressure on multiples in this cycle," said Bernstein.
He then points to RBA's Earnings Expectations Life Cycle, introduced in 1990, in which stocks rotate around a cycle of investor interest. The sweet spot, he says, is buying a company around the 7 o'clock mark - positive surprise - and getting out 11 o'clock - growth - before things start going downhill.
What he likes at the 7 o'clock hand right now are dividend-paying stocks. "This is kind of normal operating procedure. When people get very heady, there's a speculative tone to the markets. People forget about dividends," and shun them in the belief they can't grow, he said.
"The power of compounded dividends is extraordinary, boring as all get out, but an extraordinary way to build wealth," over time, Bernstein said. "One of the biggest exposures in our equity portfolios right now is very much focused on dividends, just plain dividends."
He's also a fan of non-U.S. stocks. "Right now you've got stocks selling outside the United States that are growing faster than the Mag 7, that have dividend yields that are seven or eight times that of the Mag 7 and some from anywhere from 30% to 50% cheaper," he said. "The Maseratis are on sale and no one cares."
The Richard Bernstein Advisors Global Dividend Kings unit trust counts Japan's Mitsui (JP:8031), Italy's BPER Banca (IT:BPE) and Japan's Astellas Pharma (JP:4503) as its top holdings.
"We actually think we're at the beginning of a secular bull market in non-U.S.," he said.
The iShares MSCI all-world ex-U.S. index ACWX has gained 31% over the last 52 weeks, vs. 15% for the S&P 500 SPY.
He said they are also like small caps, especially the non-tech companies investors seem to care little about, due to theme of reindustrialization of the U.S. economy that they've liked for more than a decade. It's a sector starved for capital, which makes it a strong long-term investment story, he said.
"The irony is that a lot of these companies have great businesses and are doing very well," he said, opposed to AI, which is seeing so much money thrown at it where long-term returns bound to disappoint.
The markets
U.S. stock futures (ES00) (YM00) (NQ00) are mostly higher, with silver (SI00) and other base metals (PL00) (PA00) pulling back. Natural gas (NG00) is also dropping, along with oil (CL00).
Key asset performance Last 5d 1m YTD 1y S&P 500 6950.23 0.15% 0.64% 1.53% 15.60% Nasdaq Composite 23,601.36 0.37% 0.54% 1.55% 22.02% 10-year Treasury 4.227 -7.30 10.00 5.50 -31.10 Gold 5089.1 10.61% 16.99% 17.47% 85.52% Oil 60.38 1.96% 4.41% 5.17% -17.40% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
Humana $(HUM)$, UnitedHealth $(UNH)$, CVS Health $(CVS)$ and other health insurers are tumbling on big disappointment over a preliminary payment proposal for Medicare Advantage.
Earnings are coming from companies including Boeing $(BA)$, with Texas Instruments $(TXN)$ reporting after the close.
The Fed will kick off its two-day policy meeting, with a decision due Wednesday.
The November Case-Shiller home-price index is due at 9 a.m., followed by the Conference Board's January consumer confidence index at 10 a.m.
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January 27, 2026 07:08 ET (12:08 GMT)
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