Artificial intelligence (AI) stocks continue to thrive, and they’re a major force behind the market’s ascent this year. The S&P 500 (^GSPC +0.50%) is up 7% year to date, and the tech-heavy Nasdaq-100 is up 15%. It’s a joyous time to be in the market.
But new investors who think everything AI touches turns to gold might be out of touch with reality. Consider what legendary investor Warren Buffett has said about these kinds of markets and how investors should approach them.
The ultimate risk-taker
Warren Buffett made a name for himself as arguably the greatest investor of our time. When he stepped down as CEO of Berkshire Hathaway (BRKA +0.76%) (BRKB +0.71%) at the end of 2025, the holding company’s track record under his tenure vs. the S&P 500 was a 6,099,294% total gain vs. 46,061%.
Buffett and his team didn’t succeed by loading up during bull markets, although they often find what to buy in any market. In fact, Buffett has credited just a few trades as being the major drivers behind his success; finding deeply discounted stocks is the value approach to investing.
Image source: The Motley Fool.
Deeply discounted doesn’t mean cheap or low-priced. A stock is only a bargain if it fulfills Buffett’s criteria for an excellent business and trades below its intrinsic value. Very often, when stocks fall to extreme levels, it induces fear among investors, who might sell off even more.
Buffett is exactly the opposite. He waits for these kinds of opportunities and then pounces. For someone who doesn’t like risky stocks, it’s the ultimate level of risk-taking: going against the prevailing market view.
Is the market euphoric?
The same is true of the reverse scenario. When the market is propping up stocks that aren’t really all that great, Buffett would stay far away. The way he puts it, “When investing, pessimism is your friend, euphoria the enemy.”
The S&P 500 isn’t just near record highs; its cyclically adjusted P/E ratio (CAPE) is near its second-highest level ever, and the record high was followed by three consecutive years of losses.
S&P 500 Shiller CAPE Ratio data by YCharts
According to Buffett’s view, now is probably not the best time to buy. However, the caveat to that is that even Buffett spots bargains in any market. You can always find great stocks to buy, and staying in the market is the most important factor for long-term success. When the market is euphoric, it’s crucial to stay above the fray and focus on fundamentals and valuation; avoid the pessimism and reach for the euphoria.