I hear this argument brought up all the time, but I just don't find it to be convincing at all. Many of the "dot com" speculative stocks were not dominating the S&P 500. They were smaller cap stocks (pets.com, etc), similar to meme stocks.Setting aside Tesla and Nvidia, and maybe not even those, the valuation of the "Magnificent 7" is nowhere near what the Tech-Media-Telecoms sector reached at its heights in 2000. Or at least not the internet stocks.
Nvidia it turns out the financial performance, to date, supports the very high valuation. It's a grotesquely expensive stock, but with incredible underlying financial performance.
Microsoft, Apple, Amazon, Facebook, Alphabet. They make a lot of money so current PEs are high but not extreme. What's at issue is whether they can keep doing it, I think.
In 2000 you had these companies:
Microsoft
General Electric
Cisco Systems
Walmart
Exxon Mobil
Intel
Citigroup
IBM
Oracle
Home Depot
Merck
Coca-Cola
Procter & Gamble
AIG
Johnson & Johnson
Qualcomm
Bristol-Myers Squibb
Pfizer
AT&T
Verizon
Some of these had valuations not too dissimilar from some companies like Nvidia. What's even worse for Nvidia than P/E is the price/sales, which is even higher than seen in 2000. Valuations can change quickly. Microsoft was a darling and commanded a high PE, seemingly for a reason, until it didn't and then the P/E collapsed into something resembling the rest of the market.
The biggest threat to the S&P 500 isn't that these aren't cash-flow generating businesses that manage to grow their profits over time. It's that they fail to live up to the lofty valuations.
The current valuations may justify the earnings growth seen from 2010-204, but the real question is will they justify the earnings growth seen from 2024 into the future in aggregate?
A re-rating of valuations from these levels to something more like a "normal" company would mean severe headwinds for the S&P 500.
Statistics: Posted by Nathan Drake — Mon Sep 16, 2024 11:09 pm — Replies 6983 — Views 1693950