Wall Street has been in a wavering mode lately, thanks to concerns related to rich artificial intelligence (AI) valuations. Investors have grown increasingly cautious amid mounting economic uncertainty and stretched market valuations. Concerns over inflated stock prices, mainly in AI-related momentum names, have kept Wall Street under pressure.

The European Central Bank (ECB) warned in its Financial Stability Review that global equities remain elevated, with rising concentration among major U.S. hyperscalers such as NVIDIA, Alphabet, Microsoft and Meta, as quoted on CNBC.

Heavy Concentration in Magnificent 7 Raises Risk

The Magnificent 7 — Alphabet, Amazon, Apple, Tesla, Meta, Microsoft and NVIDIA — are up 24% year-to-date and represent 40% of the Morningstar U.S. Index. Morningstar strategist Michael Field called this concentration risky, especially given their collective dependence on AI, CNBC mentioned.

The firm sees upside in most names but says Tesla is more than 50% overvalued. ARM Holdings also trades at extremely stretched valuations, roughly 90× expected 2026 earnings, as quoted on CNBC.

Central Banks Call for Caution, But Strong Earnings a Plus

The ECB joins the Bank of England and the IMF in flagging risks. The ECB, while worrying about the current high valuations of AI stocks, believes that today’s valuations are aided by strong earnings.

Investors should note that for the Magnificent 7 group, Q3 earnings are on track to be up +26.9% from the same period last year on +17.6% higher revenues, which would follow the group’s +26.4% earnings growth on +15.5% revenue growth in the preceding period, per Earnings Trends issued on Nov. 19, 2025.

The Q3 earnings for the S&P 500 index would be up +9.9% from the same period last year if the Mag 7 group’s substantial earnings contribution is excluded (vs. +14.8% otherwise). This shows the exceptionally strong earnings momentum of the AI-heavy Magnificent 7 group.

For the Mag 7 group, total 2025 earnings are expected to increase by +21.0% on +11.6% higher revenues. Excluding the Mag 7 contribution, total earnings for the remaining S&P 500 companies are expected to grow +8.1% in 2025, which compares to +4.6% growth in 2024 and a -4.9% decline in 2023.

The Mag 7 companies are expected to bring in 25.3% of total index earnings in 2025 and 26.6% of total S&P 500 earnings in 2026.

Avoid Panic-Selling, but Don’t Ignore the Risks

Morningstar strategist Michael Field cautioned investors not to sell in a panic but to remain aware of the risks. Wedbush analyst Dan Ives is even more bullish, arguing the market isn’t in a bubble – instead, he sees the industry in year three of an 8–10 year AI buildout, as quoted on CNBC. He expects the tech bull market to continue for at least two more years before moderating.

ETFs in Focus

Against this backdrop, investors can keep track of iShares U.S. Technology ETF (IYW Quick QuoteIYW - Free Report) , Fidelity MSCI Information Technology Index ETF (FTEC Quick QuoteFTEC - Free Report) , Global X Artificial Intelligence & Technology ETF (AIQ Quick QuoteAIQ - Free Report) , First Trust Dow Jones Internet Index Fund (FDN Quick QuoteFDN - Free Report) , iShares Future Exponential Technologies ETF (XT Quick QuoteXT - Free Report) and Global X Robotics & Artificial Intelligence ETF (BOTZ Quick QuoteBOTZ - Free Report) .