Mr. Market Is Having A Moment: Some Stocks Are Absurdly Expensive While Others Are Absurdly Cheap

Mr. Market is having a moment. He is in love with certain stocks and has bid them up to absurd valuations. On the other hand, he has come to the conclusion that software stocks are doomed by AI and thrown them indiscriminately in the trash can. This creates a nice opportunity for investors to sell the former and buy the latter.

Let’s start with a few of the stocks Mr. Market is currently in love with. Number one on this list has to be Walmart (WMT). WMT is a great company. I owned it for many years and I would own it again. But to put a 50x multiple on a mature business – what Peter Lynch termed a “stalwart” – is absurd. The stock is probably worth half that.

A reckoning is coming here, maybe as soon as Thursday when WMT reports 4QFY26 earnings. With a market cap of $1 trillion, WMT’s performance also has implications for the performance of the market cap weighted S&P 500 index as a whole.

Exhibit #2 is Caterpillar (CAT) – a stock I recently sold. Those of you who read my stuff know that I believe the biggest theme going forward for the next cycle is: Hard Assets > Digital Assets. So naturally I’ve been bullish CAT because they make the equipment that gets the hard stuff out of the ground and turns it into infrastructure. But the move in the stock caused the valuation to become bloated and it was time to take profits. With a $359 billion market cap, CAT is also one of the biggest weights in the S&P 500.

My final example is Micron (MU) which is profiting from a shortage of memory chips and the resulting high prices. MU is now worth $459 billion. But MU is notoriously cyclical. This time isn’t different.

That’s a retailer, an industrial and a tech stock. There are others I could mention but I’ll leave it there for now. While Mr. Market loves WMT, CAT and MU, it hates software stocks because it is convinced for the moment that AI means the end of them. Excuse me if I take the other side. Many of these stocks have become too cheap and I’ve taken the opportunity to buy.

Let’s start with Microsoft (MSFT). Mr. Market has sent MSFT down more than 25% in the last few months. That’s a gift! Other software stocks have been beaten up far worse. Take a look at the above charts of Salesforce (CRM), Service NOW (NOW) and Adobe (ADBE).

ADBE is trading for 11x its FY26 guidance and CRM is at 16x. Mr. Market is acting like these great companies are facing an existential threat. Maybe they are – but I doubt it. Corporate America uses their platforms and won’t be so quick to jettison them. Further, they’ll find a way to integrate AI into their own offerings. No guarantees but the risk/reward is excellent.

Don’t be scared by Mr. Market’s wild gyrations. Like Ben Graham said, he’s a Manic Depressive. In fact, it’s these short term dislocations caused by emotional overreactions that create the great opportunities in the market. Now is one of those times.