The idea with index investing is usually to buy a total stock market index. The whole stock market is in the index, so saying the index is in a bubble is basically the same as saying the stock market itself is in a bubble.

Which could be, but isn't an argument for buying individual stocks instead of the index, since that doesn't avoid the problem.

This is a pretty reasonable theory. And it's true, if everyone indexes then stocks generally become mispriced. But this theory only applies at the extreme, not at the margins if say 50% or 90% of money is in index funds. If a few savvy traders buy the good stocks and sell the bad ones, they make a profit and the stocks become "correctly" priced again.

In one view of the market, this is what all those hedge funds are paid to do. They keep the prices correct and extract some money, while everyone else indexes and pays them a small fraction of their returns. Of course, hedge funds aren't getting much of that pie these days.

It is hypothetical, because you're ignoring the other side of the equation: all the sophisticated investors (hedge funds etc.) who detect that stocks are temporarily propped up in some sector and will collapse, and so go short at the inflated prices... thus lowering prices.

Companies always face a reckoning point, on their individual timelines.

It's just arbitrage 101. Nothing stays mispriced forever. And the sooner the "other side" figures it out, the quicker prices correct -- so you've got to be fast. Which is exactly what sophisticated investors are.