Is the Vanguard S&P 500 ETF Still Worth Buying Right Now?

The article says the Vanguard S&P 500 ETF (VOO) is still a short-term buy, but warns that valuations are historically expensive, with the Shiller CAPE ratio at 42.84 as of June 2, 2026 versus 44.19 at the 1999 tech bubble peak. Forward P/E is around 21, supported by strong AI-driven earnings growth, but the long-term return outlook is described as more complicated due to stretched prices. The piece is largely commentary rather than a new market-moving event.

Analysis

The key market implication is not that the index is “expensive” in a generic sense, but that the valuation ceiling is now being set by a narrow set of AI cash-flow compounding stories while the rest of the market is tagging along. That creates a fragile index-level setup: if AI capex decelerates or monetization slips even modestly, the multiple compression can hit the whole basket even though only a subset of constituents drove the earnings growth. In other words, the S&P can look fundamentally healthy right up until breadth rolls over.

The more actionable read-through is that the risk is concentrated in the second derivative of AI spend, not the first derivative of AI demand. Suppliers and beneficiaries tied to near-term capex may still print strong quarters, but investors are paying peak-cycle multiples for what is increasingly becoming a “show me” market on ROI, deployment cadence, and pricing power. That tends to favor companies with true bottlenecks and recurring revenue over hardware or infrastructure names whose upside depends on continued budget expansion.

A high CAPE also changes the behavior of capital allocators: buybacks become less accretive, passive inflows do more of the index lifting, and any macro wobble can force factor de-grossing faster than fundamentals would imply. The contrarian point is that expensive markets can stay expensive when earnings are compounding, so shorting the index outright is premature; the better expression is relative-value, especially where valuation still assumes linear AI upside rather than a slower normalization path.

For timing, the next 1-3 quarters matter more than the long term: if 2026-2027 estimate revisions remain upward, the tape can keep working, but if revisions flatten, CAPE becomes the anchor and multiple compression usually arrives before any outright earnings deterioration. That makes this a regime where upside is still available, but drawdown risk is asymmetrically worse than the headline tone suggests.

Key Decisions for Investors

• Maintain a tactical long VOO only on pullbacks, but cap position size and pair with downside hedges; use 3-6 month puts or put spreads to protect against an estimate-revision reset if AI capex momentum slows.
• Express the AI theme via a basket of bottleneck beneficiaries rather than broad index exposure; prefer NVDA over lagging infrastructure names because pricing power and ecosystem lock-in should preserve margins even if capex growth moderates.
• Avoid chasing cyclical AI hardware suppliers into earnings; if long INTC at all, treat it as a trading vehicle only, since its upside depends more on sentiment re-rating than durable earnings power.
• Use a relative-value pair: long NVDA / short VOO for 2-4 quarters if AI earnings revisions remain positive; this isolates the structural winner while reducing exposure to CAPE compression across the rest of the index.
• For contrarian risk, consider a small call spread on NFLX only if market leadership broadens beyond AI; it has no direct AI beta, so any outperformance would signal a healthier tape and reduce the odds of an index-level de-rating.