Torsten Slok’s analysis of the current AI bubble compared to the 1990s tech bubble, as depicted in a single graphic, has sparked discussions about the valuation of the top U.S. companies and the broader implications for the market.
Slok’s report highlights the median PE multiples for the ten most valuable U.S. companies at five-year intervals from 1990 to 2020, the overall numbers for the S&P 500, and the index excluding the top ten.
The data shows that the current Top 10 PE multiple is around 40, significantly higher than the levels seen during the late 1990s and early 2000s tech bubble.
Apollo’s Economist, Marc Rowan (Credits: The Artistree)
This assessment has led to a closer examination of the stocks that comprised the top ten in 2000, those that still hold that position today, and how they have performed as individual stocks and as a portfolio.
By calculating a combined PE for the entire group, one can gauge the performance of a cap-weighted assemblage of these stocks over time.
This analysis raises questions about the sustainability of the current valuations of tech giants like Nvidia and others leading the AI revolution.
While investors have been buying into the AI theme, there are concerns about whether these valuations are justified and if there is potential for a market correction.
Slok’s graphic is a stark reminder of the risks associated with market exuberance and the importance of careful analysis when making investment decisions. It also underscores the need for investors to diversify their portfolios and not rely solely on high-flying tech stocks for returns.
As the market continues to evolve, keeping an eye on valuation metrics and market trends will be crucial for investors looking to navigate the complex landscape of the modern market.
