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Markets

Should the Current Stock Market Valuation Concern Investors? Here's What Billionaire Bill Ackman Thinks.

March 28, 2026 — 08:40 am EDT

Written by

Adam Levy for

The Motley Fool->

Key Points

- Bill Ackman focuses on finding undervalued stocks for his hedge fund.

- The S&P 500 is increasingly concentrated in just a handful of mega-cap stocks.

- Value needs to be considered in the context of growth expectations and risk.

- 10 stocks we like better than S&P 500 Index ›

The last few years have been absolutely fantastic for stock investors. The S&P 500 (SNPINDEX: ^GSPC) produced a total return of 86% between 2023 and 2025. That's a 23% co al return. The tech-heavy Nasdaq Composite (NASDAQINDEX: ^IXIC) climbed even faster, up 127%, as companies tied to the growth of artificial intelligence led the stock market higher.

But investors have started to fear that the market has overextended itself at this point. Valuations have moved steadily higher over the last three years, and the durability of company earnings has been called into question in 2026. Ironically, investors are now worried about the potential negative effect that AI will have on future earnings for some industries. Still, the market's overall valuation remains fairly high as confidence deteriorates.

Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »

Billionaire Bill Ackman, who focuses on buying undervalued stocks for his hedge fund Pershing Square, shared his thoughts on the current market valuation in his most recent letter to shareholders. His conclusion might surprise you.

Image source: Getty Images.

How expensive are stocks right now?

After the recent pullback in the stock market, the S&P 500 now trades for about 20.6 times aggregate forward earnings estimates. That's still well above its long-term average in the mid- to high teens, but considerably below the 22 times earnings multiple it traded for at the start of the year.

The high overall S&P 500 price-to-earnings (P/E) ratio is largely attributable to just a handful of the largest companies. If you look at the 10 largest stocks in the S&P 500, they trade for forward P/E ratios ranging from 19.6 (Meta Platforms) to 184 (Tesla). The majority trade for P/E ratios in the mid-20s, with a median earnings multiple of 26. With the top-heavy S&P 500 (these 10 companies account for 38.5% of the S&P 500's market cap), they have an outsized effect on the index's overall valuation.

Ackman points out that these 10 giant companies are all expected to grow their earnings per share by more than 20% on average over the next two years. As a result, their higher-than-average valuations are justified. In fact, some of them look like bargains at today's price. Ackman notably added to Pershing Square's Amazon position in the fourth quarter and established a position in Meta.

Ackman points out that many of these mega-cap stocks, which account for a large portion of the S&P 500, have durable structural advantages that should enable them to sustain their high growth rates over the long run. Those advantages include "their global scale, dominant market positions, access to low-cost capital, and leadership in artificial intelligence and related technologies." As a result, Ackman concludes: "The market's P/E multiple is justified and can remain sustainably higher than historic averages."

Howard Marks, the billionaire co-founder and co-chairman of Oaktree Capital, shared a similar sentiment last summer. At the time, the Magnificent Seven traded for even higher P/E ratios than they do today, as their financial results have so far proven the market right, and their stock prices have come down since last fall. Of the Magnificent Seven's high valuations, Marks wrote: "I don't find it unreasonable when viewed against what I believe to be the companies' exceptional products, significant market shares, high incremental profit margins, and strong competitive moats." Instead, he warned investors that the other 493 companies in the index could be what investors should worry about when it comes to valuation.

Finding value in today's market

While the overall valuation of the stock market can be explained by the overall higher valuations and relative prospects of the largest companies in the major indexes, that doesn't mean all stocks are trading at good or even fair values right now.

Even among the top 10 companies in the S&P 500, there are arguably some very overvalued stocks. Is Walmart's forward P/E of 42 justified