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The reason people are concerned about a bubble is because the valuations of these companies are hard to reconcile with any real-world increase in value creation
by skohan 6y ago
The reason people are concerned about a bubble is because the valuations of these companies are hard to reconcile with any real-world increase in value creation. The price of many the FAANG stocks has gone up a huge amount relative to their increase in revenue.
- dannyw 6y agoBut they have gone up proportionately to changes in the risk free rate, which is now at 0%, and expected to be about ~1% over the next 30 years (see: 30yr bond yields). In 2019, Apple paid ~1.7% in dividend yield when 10YR treasuries were paying ~1.7%. In 2020, Apple now pays ~0.77% in dividend yield, and 10YR treasuries pay ~0.7%. Do you see a pattern? :) It's absolutely possible for the fair value of a stock to double: you just need lower interest rates.