It may be worthwhile to pay closer attention to OG investor Warren Buffett’s favorite stock market indicator.

Because it’s now flashing a major warning sign amid the AI stock frenzy.

The so-called Buffett Indicator stands at about 232.5% — up a sharp 13% from the March 30 lows, per data from GuruFocus. The indicator has never been higher, going back to the earliest GuruFocus data in 1970.

At current levels, the indicator is in the “significantly overvalued” zone — with stocks potentially on a collision course for modest negative returns over the next year.

The Buffett Indicator takes the Wilshire 5000 Index (viewed as the total stock market) and divides it by the annual US GDP. It rose to fame following a 2001 Fortune magazine article written by Buffett and longtime Fortune writer and Buffett insider Carol Loomis.

“The ratio has certain limitations in telling you what you need to know,” Buffett explained in the article. “Still, it is probably the best single measure of where valuations stand at any given moment.”

For his part, Buffett has bet on the AI future by maintaining stock investments in Apple (AAPL) and, more recently, adding to his position in Alphabet (GOOG, GOOGL).

Current Berkshire Hathaway CEO Greg Abel recently committed a $10 billion investment into Alphabet to help fund the tech giant’s booming artificial intelligence infrastructure.

Even still, it’s hard to argue that stock valuations have reached worrisome levels.

Besides the Buffett Indicator, trading activity in US stocks with high enterprise value-to-sales multiples is near a decades high — exceeded only in 2000 — according to new research from Goldman Sachs strategist Ben Snider.

“The velocity of the recent equity market rally has generated investor anxiety about the sustainability of the bull market and spurred a search for signals that the peak is near,” Snider said.

Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.

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