In October, the US equity market traded at a 2% discount to fair value estimates, with valuations rising by $4.2 trillion. Mega-cap AI stocks dominate market concentration, with eight of the top 10 stocks tied to AI. Large valuation increases for Alphabet, Nvidia, and Apple drove market capitalization up significantly, totaling $3.1 trillion.

The Morningstar US Growth Index rose 1.42% in October, with a 3% premium to fair value. Small-cap stocks remain attractive, trading at a 16% discount. The AI buildout boom continues to drive strong growth rates in technology, communications, and utilities sectors, while other sectors like energy and consumer stagnate.

Undervalued sectors include communications, real estate, and oil stocks, benefiting from low interest rates. Overvalued sectors like utilities, consumer defensive, financials, and industrials face challenges. The market will shift focus in 2026 to companies utilizing AI to drive growth and efficiency, posing new investment opportunities and risks.

Read more at Morningstar: November 2025 Stock Market Outlook: AI Mega-Caps Drive Valuation Surge