The S&P 500 finished 2025 with a total return of 18% -- its third consecutive year with a double-digit gain. The trend of ongoing technological dominance continues, as the market has more recently been lifted by the artificial intelligence (AI) boom.
There are certainly fears these days that we are in an AI-inflated bubble in 2026. Despite this backdrop, is it still a smart idea for investors to buy a leading S&P 500 exchange-traded fund (ETF)?
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Key factors supporting the AI bubble argument
The most obvious sign that we might be in an AI bubble is the massive amount of capital being invested to build out the technical infrastructure for related projects. "We see $3 trillion to $4 trillion in AI infrastructure spend by the end of the decade," Nvidia CFO Colette Kress said last August.
That's a jaw-dropping forecast sum that isn't supported yet by returns on invested capital. For instance, research from Menlo Ventures estimates that only 3% of users pay for AI services. And the dominant tech companies that are leveraging AI capabilities so far might be seeing only incremental improvements, not game-changing leaps.
Valuations can't be ignored, either. Palantir Technologies trades at a nose-bleed price-to-sales ratio of 110. This multiple wouldn't happen if there weren't such huge hype surrounding AI.
To be clear, I have zero clue whether we're in a bubble or not. These trends certainly can make investors uneasy. However, the bullish fever can continue longer than anyone can predict.
Keep things simple, and focus on the long term
Even accounting for the AI bubble fears, I believe investors should still be thinking about putting money to work. The Vanguard S&P 500 ETF (VOO 0.19%) is an excellent choice, particularly since it carries an expense ratio of just 0.03%.
NYSEMKT: VOO
Key Data Points
Investors probably always have the desire to buy stocks while they're on the dip. However, data shows that over long periods, say 10 years or more, the S&P 500 generally produces positive annualized returns. Even buying at all-time highs is not a concern if you adopt a long enough time horizon.
This isn't to say that there could be a drawdown at any point without warning. We could see the S&P 500 fall in 2026, especially since it just had three fantastic years. Sentiment could turn negative as the market becomes more critical of the massive AI-related spending underway.
Investors should still avoid trying to time the market and instead continue to put money to work early and often. The Vanguard S&P 500 ETF is a great vehicle to consider.
