The Market Isn’t at a Record High — Profits Are
Author: William Moulod
The ground feels like it’s shifting under our feet. AI is rewriting the rules in real time. Jobs we thought were safe are under threat, industries are morphing, and the future feels like it’s arriving too fast.
Against that backdrop, headlines shouting “Markets at record highs!” only add to the unease. It sounds like a bubble. It sounds like danger.
But here’s the truth: the market isn’t at a record high if you count profits.
Profits, Not Prices
Stock prices don’t move by magic. Over time, they follow free cash flow per share. If profits compound, the stock follows.
Right now, profits across the S&P 500 are at record highs too. On a forward basis, the index trades at about 22 times earnings — slightly above its long-term average, but nowhere near bubble territory.
The rise in prices is being carried by the rise in profits. That’s not speculation. That’s the scoreboard.
The AI Paradox
AI isn’t just another technology cycle. It’s an industrial revolution happening inside the internet — a mature, globally connected economy. That makes it unlike anything we’ve seen.
Disruption doesn’t roll out slowly, industry by industry. It spreads instantly across every sector. Jobs vanish. New ones appear. Anxiety follows.
And here’s the paradox: the very companies driving this disruption are also the most effective hedge against it. If AI is going to reshape the world, then owning the businesses most leveraged to AI is one way to stay on the right side of history.
A Simple Way to Judge Businesses
When you strip away hype, investing becomes simpler than most people think.
The hard values:
Is free cash flow per share growing?
Is the price fair compared to that growth?
Does the business have a moat that keeps competitors out?
The soft values:
Is leadership disciplined?
Does the culture innovate instead of rest on success?
Are there long-term tailwinds behind the business?
Can it survive shocks and still compound?
Numbers give discipline. Judgment gives conviction. Together, they reveal which businesses are worth holding through cycles.
The Mag5 in Focus
Take away Tesla and Nvidia, with their sky-high multiples, and you’re left with the Mag5: Alphabet, Meta, Microsoft, Apple, and Amazon. These are the companies most positioned to benefit from AI — and their valuations are more grounded than the headlines suggest.
Alphabet trades around 21× forward earnings. Free cash flow per share has grown about 16% a year. Its moats — Search, YouTube, Cloud — are some of the deepest in business.
Meta trades around 26× forward earnings, with free cash flow growth over 21% a year. Heavy AI spending masks what remains a powerful cash machine.
Microsoft is the premium name at ~33× forward earnings. Free cash flow growth has been steadier at ~10%, but its moat is unmatched: Office, Windows, Azure, and now AI copilots built into the enterprise stack.
Apple trades around 29× forward earnings, with slower FCF growth (~6%), but its ecosystem and buyback flywheel make it one of the most resilient companies on the planet.
Amazon looks expensive on today’s cash flow, but that’s because it’s in the middle of a heavy capex cycle. AWS and its global logistics network mean the rebound in free cash flow could be sharp when the cycle turns.
Each of these companies meets the test: engines that compound, moats that endure, and valuations that make sense in context.
What This Means
If you feel uneasy about AI, about the economy, about the future of work — you’re not alone. I’ve felt that same uncertainty myself. Growing up, I didn’t have access to this kind of information, and I know how confusing it can all seem from the outside.
But here’s what I’ve learned: you don’t have to chase hype or guess at trends. You can focus on the engines of compounding that already exist.
The market is not at a record high. The truth is that profits are. And the companies most leveraged to AI — the Mag5 — remain the clearest way to participate in the future instead of fearing it.
