Is the Stock Market in Bubble Territory?

Valuations are stretched, but is it a bubble? In this podcast, Motley Fool contributors Travis Hoium, Lou Whiteman, and Rachel Warren discuss that as well as:

• The latest AI and energy news.
• ASML's earnings.
• A surprising report from Johnson & Johnson.
• Alphabet's $25 billion data center and energy deals.
• Bold predictions this earnings season

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A full transcript is below.

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This podcast was recorded on July 16, 2025.

Travis Hoium: Is a market bubble farming right under our noses? Motley Fool Money starts now. I'm Travis Hoium, joined by longtime Fools, Lou the legend Whiteman, and from an undisclosed location somewhere in Europe, Rachel Warren. Today, we're going to get to ASML and Johnson & Johnson's earnings results, which came in overnight. Google's $25 billion energy deal. But first, are we in a market bubble? Lou, I remember Cloudflare trading for 100 times its sales at the peak of the market in 2021. The stock then fell 80% in six months. Today, Palantir is trading for 110 times sales. The stock is over $150 per share. Robinhood, 25 times sales at $100 per share. It looks like a bubble. It feels a little like a bubble. Are we in a bubble?

Lou Whiteman: Look, Travis, there's always a bubble somewhere. Valuations they look stretched. My go-to stat here is the S&P 500 is currently trading at 25 times earnings. That's well above the 20-year average, about 16 times earnings. That's frothy. I do think you need to keep that in mind. For example, I think Hidden Gems just sold down some of its position in Arista Networks based on high valuation. You keep that in mind. But here's the thing. Markets can remain at high valuations for a long time. I'm not running for the exits. I'm being selective. I'm looking for opportunities out there in areas like financial services and income stocks. I'm keeping that in mind, I'm adjusting as we go, but I also want to stay in the market.

Rachel Warren: I don't think I would say that we are in a stock market bubble, but I do think it's an important point to discuss. We're looking at valuations of a lot of tech companies right now, in particular. I think it's easy to be concerned that there might be a bubble forming. We've heard a lot of analysts make comparisons to the .com boom, of course. There's a lot of excitement that we're seeing in the tech base in particular, right now. This is being driven by the AI revolution, whether it's data center companies, chip companies, or software-based platforms like Palantir, as you mentioned, that are boosting their business with AI-driven services. This is where so much of the market seems to be focused. It's also a time where a lot of the modern pace of innovation is tracing back to right now. You look at a company like Robinhood. You've got the broader resurgence of interest in crypto that's benefited the platform. It's expansion into Europe, stock tokenization, and crypto futures. Those are just a few catalysts.

I will say, I think it creates a situation where many valuations are heightened, probably in some cases, for more than a given company's intrinsic worth. But I don't think that that valuation dynamic is true across the board. I think you can look at other industries where valuations are much more reasonable, find quality accessible businesses. For that reason, I don't think we're in a broad stock market bubble. But are valuations too high in some cases? I think that's the case. I think it's more important than ever for investors to be discerning when evaluating the intrinsic worth of companies, making sure it's the right fit for their personal portfolio, thinking about, where's your money? What is the true monetizable business here? Does it have those durable value-driven tailwinds for the company's growth? I think those are the questions that we have to ask ourselves as investors.

Travis Hoium: Sounds like the final answer is, we're probably in a bubble somewhere. We just don't know exactly where it is. I want to get to one of the companies that's involved in potentially inflating bubbles. That is Google and their latest AI news. We'll do that after a quick break.

Potential bubbles, let's turn to artificial intelligence, and Google announced $25 billion in data center and energy deals in the PJM, which manages electricity across 13 states from New Jersey to North Carolina, all the way over to Chicago. This comes on the heels of Energy's biggest inflation numbers in quite a while. 5.8% increase in electricity prices over the past 12 months. That was reported just yesterday. AI is an energy hog. We know that Rachel utilities have been a boring way to make money for decades, 1, 2, 3% growth. But does the recent change in artificial intelligence and the energy needs there, does that change anything? Does that change the way that you look at the utility space in any way?

Rachel Warren: For me, personally, I wouldn't say that this changes the trajectory of my investing interests in the energy space. I will say, it's not a space I gravitated toward. There are plenty of fellow fools who do. But if anything, as an alphabet investor, this makes me more excited about the investments this company is making that I think can help cement its continued leadership and strides in the AI space. In addition to that $25 billion data center and AI infrastructure investment, Google's also spending about $3 billion to modernize two hydropower plants in Pennsylvania, and that's designed to facilitate the power demand from AI and data centers in the area. One thing to bear in mind, PJM is the biggest electric grid in the nation. Its coverage area includes the world's largest data center market, that's located in Northern Virginia.

We're at a time where PJM and other providers are really struggling to keep up with rising electricity demand amid the AI boom. AI training, particularly for large language models and generative AI, it's incredibly energy intensive. A single generative AI query can require almost 10 times more electricity than a traditional Internet search. Data centers are already consuming a notable percentage of the nation's electricity. Unlike some other energy demands that can fluctuate, AI requires continuous operation. That means you need a constant power supply. That strains existing grid capacity. There was a meeting that just happened yesterday at Carnegie Mellon in Pittsburgh. We have the president, his cabinet, and executives from a range of companies, including Alphabet, were there. There was a report that the companies there, including, of course, Alphabet's Google, announced a combined total of $90 billion in investments in data centers, energy, and power infrastructure. From my perspective, that's the cost of doing business for these major providers. But if you are interested in the energy space, I think it creates some nice tailwinds there.

Travis Hoium: Lou, of course, Rachel mentioned the hydroelectric plants, and of course, Brookfield Asset Management was involved. They are the company that's behind a lot of electricity generation, not only in the US, but around the world, a lot of renewable energy. Is the investing takeaway here as simple as AI is a tide that is lifting all of these utility boats, and maybe we're going to lose the consumer overboard, or what are you taking away from?

Lou Whiteman: No, my investing takeaway is not by the utilities. I'm not there yet, but the invest takeaway for me is you said it, Travis. It's Brookfield. It's always Brookfield or something like that. Look, I think the demand for energy, that trend is real. It's a long-term tailwind, but I don't want to invest in individual utilities. I don't like to pick winners among geographies or projects. My way to take advantage of this trend is to buy into a company making investments all over the sector, giving me broad exposure instead of just an individual company. Look at the Brookfield Renewable Partners case. That's the actual entity that Google's partnering with here. Brookfield Renewable is going to bring on 8,000 megawatts of capacity in 2025 alone. I'm going to take my chances getting that broad exposure instead of focusing on any one individual company and hoping that they ride the wave, as well.

Travis Hoium: I think that's probably a smart way to look at it, and you get a nice dividend yield with a lot of those asset owners as well. Next up, we're going to talk about two of the big earnings reports of the day. We'll do that after this break.

ASML, which makes critical equipment for making chips, all the artificial intelligence chips, the chips that's probably in your smartphone today. This equipment costs as much as $400 million for a single piece of equipment. They reported earnings overnight, beat on the top and bottom line with 7.7 billion euros in revenue and 590 euros per share in earnings. But the stock is down 10% today because they were a little cautious about 2026, saying they couldn't confirm. It was going to be a growth year. Lou, what are you taking away from this earnings report?

Lou Whiteman: Worth saying that, like you said, these are really expensive machines. Even in the best of times, this is a company that's tough to judge quarter to quarter. You miss one delivery, and it can throw off the quarter. You're going to have lumpy. You throw in tariffs, trade wars, and chip restrictions to China, and I understand the caution. But I'm going to note here, CFO Roger Dyson attributed to this beat, this last quarter's beat to tariffs having "less negative impact than they anticipated." I think there's a real chance this trend can continue where the uncertainty is there, but it turns out not as bad as they thought because there's just so much demand out there, and if so, I think growth in 2026 can eventually be put back on the table, whether it comes or not for long term individual investors, the underlying growth story here, the need for more and more advanced chips and therefore, the need for more the machines that can make them. That's unchanged. I think Wall Street is overreacting today. I think this is still a great company with a great future up ahead.

Rachel Warren: What's interesting about this, Abi, as you noted, Travis, ASML, they beat on both the top and bottom line expectations. This was for their fiscal second quarter. Now, they gave guidance for the current quarter that missed expectations, and they warned that there might be the possibility of no growth in 2026. But it's not quite as bad as it appears at first glance. They forecast Q3 quarter revenue of between 7.4 billion euros and 7.9 billion euros at the upper end of that tier. I was just shy of the market expectations of about 8.3 billion euros for Q3. Taking a broader, more holistic look here, there are a lot of companies in the semiconductor industry that are facing similar headwinds as ASML is right now. There's a lot of uncertainty that's been created by the US tariff policy that remains the case. It's worth noting, management still expects their full year 2025 net sales to grow 15%, and they said that their AI customers' fundamentals are still looking really strong. Anything, management emphasized the continued uncertainty that's driven by macro headwinds, and that's a dynamic that competitors are contending with, too. They're preparing for growth in 2026.

But the reality that they and other adjacent players are facing right now in many ways. It goes back to external factors that they can't control. In my opinion, you've still got a quality business here. I think investors might need to moderate expectations. If macro headwinds shift in the short term, but I think the company is well-positioned to write those out.

Travis Hoium: Johnson & Johnson was the other big earnings report this morning. Stocks up 6% as we're recording. Rachel, this was another double beat. They said, they don't need to do deals out of desperation despite a Paden cliff. What were your takeaways from the report?

Rachel Warren: It was a fantastic quarter for the business. As you noted, a beat on both the top and bottom lines. They reported $23.7 billion in revenue. That beat estimates of 22.8 billion, adjusted earnings per share of $2.77. That was compared to analyst estimates of $2.70. That came with raised guidance for the year, as well, up 5.4%, at the midpoint. We had the chairman and CEO of the company say that their portfolio and pipeline is positioning them for elevated growth in the second half of the year with game-changing approvals and submissions and key disease verticals, including oncology, psoriasis, surgery, and cardiovascular, and they're looking to extend that as the year progresses. Broken down by segment, their innovative medicine segment, which is essentially their pharmaceutical business, grew 4.5% year over year. Their medical device business saw sales climb more than 7%. Those are fantastic figures for a company at this level of maturity. This is a business that I will note has been acquisitive in recent years. That goes back to everything from their acquisition of Abiomed several years ago, where they acquired the world's smallest heart pump from that acquisition.

They recently closed the purchase of intracellular therapies. That solidified their neuroscience portfolio. One important thing to note, this was something that CFO Joe Wolk addressed in a recent interview. They are facing patent pressures, particularly on some of their key older blockbuster drugs like Stelara. That's been a $10 billion-plus drug annually in recent years. But management thinks that, really, the expected gap in revenue from the generic competition is not going to have a noticeable impact on the company. That they're really well positioned to ride that out. Broadly speaking, going back to these recent acquisitions and their continued internal development pipeline. I will also say that management noted a revision in the impact of tariffs to 200 million. That was versus the 400 million that they were previously projecting. Now, there's still a lot of uncertainty about drug tariffs that is lingering, and something that their CFO said is, we're still really waiting to see what the administration shares in that regard. We're in an environment, of course, where there's a ton of uncertainty regarding tariffs and other cost pressures for businesses like this one. I will say this is one of the most well-bolstered companies in the pharma industry from a cash perspective. They're well-positioned to handle any headwinds that might come. They have an extensive domestic manufacturing presence that they are also looking to expand. This is also a company that has been paying and raising their dividend every single year for over six decades. It's a great company, in my opinion.

Travis Hoium: To end the show, I do want to get bold with some predictions here. Now, we are long-term investors, so a one-day drop in stock is maybe not that big a deal. It might even be opportunity. ASML is one of these companies wide moat. It's down after earnings, maybe an opportunity for those long-term investors. Now I'm thinking about opportunities like Netflix in the Quickstar days, Meta's drop when it was getting fit in 2022. What are the stocks that you're looking for a potential buy-the-dip stocks as we go through earning seasons, and maybe we have some short-term turbulence. Lou, let's start with you.

Lou Whiteman: The first name that comes to my mind is Mercado Libre. In part, because, look, given the markets, given the South American exposure, the wide range of businesses, there does tend to be volatility. There does tend to be dips. I think there could be opportunities. Look, for all of the growth that this company has delivered, crazy to think about, it's what, maybe one 20th the size of Amazon. It's a current position for me, and it's constantly on my radar.

Rachel Warren: One business I've been looking at recently is Toast. This has been a intriguing company to follow, particularly for me over the last 12-18 months. They really continue to expand the cohort of clients that they're onboard into their platform. They just booked Applebee's, which was their largest deal in company history. They added over 6,000 net new locations just in Q1 of 2025 alone, and they reached an annual recurring run rate that grew 31% year over year to about 1.7 billion as of the end of March. It's a sticky business. It resonates with a lot of small, medium-sized restaurant chains. But also some of these larger companies that are starting to see the value in Toast's platform. They're looking outside the restaurant space, too, convenience stores, companies like Top Golf, or more recent Partners for them. I think there's a lot to like about this business. I'm also quite impressed by their more recent profitability. It's one that I'd be curious to take a closer look at. They happen to go down that mark.

Travis Hoium: Thank you to Lou and Rachel for joining me today. As always, people on the program may have interest in the stocks that they talk about in the Motley Fool, may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial guidelines and is not approved by advertisers, are sponsored content, and provided for informational purposes only to see our full advertising disclosure, please check our show notes. For Lou Whiteman and Rachel Warren, and the entire Motley Fool team, I'm Travis Hoium. We'll see you tomorrow.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Lou Whiteman has positions in ASML, Cloudflare, and MercadoLibre. Rachel Warren has positions in Alphabet, Amazon, and Johnson & Johnson. Travis Hoium has positions in Alphabet, Cloudflare, MercadoLibre, and Robinhood Markets. The Motley Fool has positions in and recommends ASML, Alphabet, Amazon, Arista Networks, Cloudflare, MercadoLibre, Netflix, Palantir Technologies, and Toast. The Motley Fool recommends Brookfield Asset Management, Brookfield Renewable Partners, and Johnson & Johnson. The Motley Fool has a disclosure policy.