One thing I’ve learned: when people start saying “there’s a bubble”, then there’s a bubble. The other thing is that when they say “there won’t be a crash”, there will be a crash.
6 Likes
There is a lot of intellectual capital on that link.
Really a few putzes playing with stats. Or lies, damned lies, and stats.
Who knows but they certainly do not know.
The Russell 2000 is holding up in a mid range.
1 Like
Crash is a strong word when speaking of earnings growth rates. Crash is unlikely but slowing growth is anticipated. That can cause PE to trim, not crash.
2 Likes
Chris Bloomstran had some interesting thoughts.
the Magnificent 7 have a $16 trillion combined market value, 34% of the S&P 500 and LARGER than the ENTIRE S&P as recently as February 2016, just over 8 years ago and most definitely nowhere near a market bottom…
…This is the goofiest and likely most dangerous concentration of overvaluation I’ve seen in 34 years investing and throughout financial history. The extremes extend beyond the three and seven to companies like fellow Nasdaq 100 member Costco, now with a $386 billion market cap on $254 billion in sales.
I doubt we have slow growth. The reason now is the slow growth. Most of the next fifteen years is fast growth. So if now is slow most of the future is not. I am talking about better growth in the second half.
Nvidia has profits and earnings growth. Expected to slow to about 30% this year. Must of the rest of the AI companies have no profits from AI but then we have suppliers to the industry of memory chips and other support equipment.
All thats posted above may be true in some cases but need to be clear about which segments you are talking about. XLK? QQQ? Nasdaq? Specific sectors? Applications? Companies?
Each is unique. Not monolithic by any stretch of the imagination.
There is a long history of “just became the largest Mcap”, quickly lose that position.
NVDA’s PE is 76. That is far too high. It will begin to be in quicksand from here.
Not saying ten years from now it is not much higher.
But for now? Probably toast. If history is any guide.
The industrials do not rally like NVDA but the industrials are the story. Heavy industry has the upside in this economy.
According to Yahoo Finance, Nvidia reported earnings last quarter of $0.57/sh. PE based on last four quarters is not very useful for a high growth company. I get a forward PE of 57.36 from $0.57 annualized to four quarters.
In the last four quarters earning grew from $0.25/sh to $0.57/sh. That is 228% growth rate.
For peg ratio I get 0.25. Well below 1. Certainly not over valued.
And Nvidia has an excellent record for reinventing itself with new products for developing markets. Implying that AI is their last market forever is absurd.
1 Like
But the return on AI at the top of the market falls apart. AI does not have the return currently predicted.
Analysts get that wrong endlessly.
Yes, long term chips for AI become cyclical commodities. But we well know that some markets can continue to grow for decades.
I think doom sayers are wrong. It will be a while yet. Noone knows when.
I meant something entirely different.
The market is going to suddenly stop expanding by as much as it is currently. There is not the return on most AI stuff that is assumed.
Use the word “assumption” from now on and you will see the numbers better.
[Nvidia] became the world’s most valuable listed company Tuesday thanks to the demand for its [artificial-intelligence chips] leading a tech boom that brings back memories from around the start of this century.Nvidia’s chips have been the workhorses of the AI boom, essential tools in the creation of sophisticated [AI systems] that have [captured the public’s imagination]with their ability to produce cogent text, images and audio with minimal prompting.
The last time a big provider of computing infrastructure was the most valuable U.S. company was in March 2000, when networking-equipment company Cisco took that spot at the height of the dot-com boom.
Cisco was riding the wave of a different revolution—the internet—where its products powered that budding industry. Like Nvidia, Cisco also surpassed [Microsoft]to become the most valuable company.
The reason people are talking about “bubble” is because this “rally” is being led by a tiny number of stocks, nearly all focused on one issue: AI. I have seen several analysts comparing it to the dot-com bubble of the late 90’s, others talking about the astonishing performance of Nvidia lately. I have not gone through the metrics because 1) I don’t care and 2) I don’t think they’re likely to be useful at this point.
I recall that the dot-com bubble happened over a broader range of stocks: both internet companies (Excite, @Home, AOL, etc.) and telecommunications providers (Lucent, et. Al) with a few odd standouts in allied areas: Pets.com is one that comes to mind, but also Amazon. Generally they were all focused about this “great new thing”, the internet, and while it’s true it was life changing around the world it didn’t stop things from becoming a rusting hulk of disaster once the bubble popped. Several great companies emerged from the wreckage, but there was wreckage.
Likewise AI is soaring high at the moment, dragging the valuations of companies to previously unimagined levels. (I remind that Tesla was the “it” stock last year, and it is suddenly off, what, 50%?) I am quite sure that AI will be a thing, I am just as convinced that nobody really knows how or what it will eventually be most useful as: automated drive-thru at McDonald’s? Reading medical charts? Automating factories? Designing new drugs?
I remember when companies could get a pop by adding “blockchain” somewhere in their mission statement, and before that “quality”, and before that …
But the ride is fun, especially if you’re in the car with the right logo on the side rather than say, me, watching from the sidewalk. OTOH, I would not want to be a Tesla investor who bought a year ago and watched half my investment disappear. I’m not one to say Nvidia is too high, or not high enough, but I am cautious enough to say “I’ve seen this movie before, and since I wasn’t here early I’ll just watch from the sidelines and not get too hyped up about the results if/when the final act comes down.”
Goofy
Made 7 figures on AOL and Cisco, and sold it all in 1999. Sometimes you get lucky, eh?
3 Likes
Two studies…and plenty of assumptions
A Microsoft-sponsored market study indicates a 3.5X return on AI investments with 5% of the organizations worldwide realizing as much as 8X. For this study, IDC was commissioned to survey more than 2,000 business leaders responsible for bringing AI transformation within their organizations.May 28, 2024
My comment, I go with the next assumptions.
What is the average ROI for AI?
Securing a tangible return on investment from artificial intelligence is a challenge, with the average ROI on enterprise-wide AI initiatives sitting at just 5.9%.Mar 1, 2024
How to Secure the Best ROI from Your AI Investment in 2024.
These are two different things. These are already implemented AI projects up top. Then all AI projects including those that fail. The difference in the latter I believe they are talking AI start-ups.
In other words the coming plumbing projects are not doing so well.
It was even broader than that. Starbucks had a P/E of 50. Wal-Mart almost 60.
If you move outside the Mag 7 stocks, the rest of the market doesn’t look too bad. RSP has a P/E of about 17.
Time to rotate
If the market falls you will be closer to the bottom. LOL