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The dot-com bubble serves as a classic example, as numerous companies commanded improbable valuations simply for leveraging the internet craze—think of Pets.com and others that couldn't endure once the large speculative wave subsided. Currently, we may see similar tendencies surrounding the AI sector, where companies like Palantir showcase price-to-earnings ratios that don't correlate with fundamentals.
For investors, a pressing warning sign is when assets across a sector exhibit irrational pricing relative to their earnings potential. This divergence between market price and true asset value often precedes a substantial market correction, as the market looks to revert to more logical valuations.