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Interest rates are at a record low. Amd is at a pe ratio of like 100, the average pe ratio today is around 15 iirc. With a growth expectation increasing because

Interest rates are at a record low. Amd is at a pe ratio of like 100, the average pe ratio today is around 15 iirc. With a growth expectation increasing because of apples adoption and all, plus with record low interest rates, a 60x multiple is not insane.

burnte 6y ago
60x might not be impossible, but it's absolutely insane, even if it's common.
- vikramkr 6y ago
  Nvidia's own pe ratio is around 80 it looks like. Its not actually that insane. Overvalued? Maybe. But all this is saying is that basically, you think that your current required rate of return minus your expected growth rate for ARM is around 1.7%, and your required rate of return is going to be pretty low right now because interest rates are so low. You value future earnings more and you think it's going to grow a lot. You might be wrong, and for a company like AMD with a pe ratio above a hundred you might be betting in an awful lot of growth happening, but in this environment, these are not "insane" numbers.
  - burnte 6y ago
    P/E ratio is not the same as a purchase-valuation multiplier.
    - vikramkr 6y ago
      What you brought up above in this thread is how expensive the acquisition looks as a multiple of earnings. That multiplier is the price of the company vs the earnings for the company, which is literally just a simplified P/E ratio that ignores dilution etc. You may be thinking of revenue multiple based valuation instead?
selectodude 6y ago
Apple has a one time ARM architecture license so that’s not going to be recurring revenue for ARM.
- vikramkr 6y ago
  This is more from a increasing adoption of arm industry wide perspective as people begin writing code on and optimizing code for ARM machines. Could trickle over into increased adoption by other companies and other sectors.
- burnte 6y ago
  They pay a royalty for every chip they ship.
justin66 6y ago
> the average pe ratio today is around 15 iirc I'm not sure what population of companies you're taking your average from, but the S&P 500 p/e is a lot higher than that.
- vikramkr 6y ago
  That was a mistype, thanks for catching that. I meant 25, but I haven't kept up with the last quarter so I have no idea what it looks like with all the recent insanity, so that might be pretty far off as well
valuearb 6y ago
ARM the companies growth rate has been tepid at best since SoftBank bought it. You need a high growth rate to justify a high multiple. And interest rates can change quickly. It’s a value trap to overweight current interest rates in equity valuations.
- RantyDave 6y ago
  > ARM the companies growth rate has been tepid at best since SoftBank bought it. It's a "knock it out the ballpark" victory by Softbank's standards.

burnte 6y ago

60x might not be impossible, but it's absolutely insane, even if it's common.

vikramkr 6y ago
Nvidia's own pe ratio is around 80 it looks like. Its not actually that insane. Overvalued? Maybe. But all this is saying is that basically, you think that your current required rate of return minus your expected growth rate for ARM is around 1.7%, and your required rate of return is going to be pretty low right now because interest rates are so low. You value future earnings more and you think it's going to grow a lot. You might be wrong, and for a company like AMD with a pe ratio above a hundred you might be betting in an awful lot of growth happening, but in this environment, these are not "insane" numbers.
- burnte 6y ago
  P/E ratio is not the same as a purchase-valuation multiplier.
  - vikramkr 6y ago
    What you brought up above in this thread is how expensive the acquisition looks as a multiple of earnings. That multiplier is the price of the company vs the earnings for the company, which is literally just a simplified P/E ratio that ignores dilution etc. You may be thinking of revenue multiple based valuation instead?

selectodude 6y ago

Apple has a one time ARM architecture license so that’s not going to be recurring revenue for ARM.

vikramkr 6y ago
This is more from a increasing adoption of arm industry wide perspective as people begin writing code on and optimizing code for ARM machines. Could trickle over into increased adoption by other companies and other sectors.
burnte 6y ago
They pay a royalty for every chip they ship.

justin66 6y ago

> the average pe ratio today is around 15 iirc I'm not sure what population of companies you're taking your average from, but the S&P 500 p/e is a lot higher than that.

vikramkr 6y ago
That was a mistype, thanks for catching that. I meant 25, but I haven't kept up with the last quarter so I have no idea what it looks like with all the recent insanity, so that might be pretty far off as well

valuearb 6y ago

ARM the companies growth rate has been tepid at best since SoftBank bought it. You need a high growth rate to justify a high multiple. And interest rates can change quickly. It’s a value trap to overweight current interest rates in equity valuations.

RantyDave 6y ago
> ARM the companies growth rate has been tepid at best since SoftBank bought it. It's a "knock it out the ballpark" victory by Softbank's standards.