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I normally think the entire market is overpriced, which I mostly still do, but I'm not convinced that tech stocks are overpriced, at least the ones he referred

I normally think the entire market is overpriced, which I mostly still do, but I'm not convinced that tech stocks are overpriced, at least the ones he referred to. Nvidia has a forward P/E of 32, which is in line with Microsoft (35), Apple (28), Intel (31). Compare to KO (Coca-Cola) which is 22, which gives the 33% tech premium that one of his linked articles notes. But KO is going to grow at the rate of global growth (3 - 5%); I think it is not unreasonable that all of those companies are going to grow at least 33% more than KO. So I don't think there is a bubble in major tech stocks. It is possible that Nvidia will not retain its current sales over the long term, but given that Nvidia cannot satisfy current demand, that seems unlikely in the next couple of years. Training the future models isn't likely to require less compute, and I think there is a reasonable case to be made that people will need domain-specific training for domain-specific ChatGPTs (or whatever the future is). Which means more training. Yes, I think it is way overhyped, but on the other hand, actual people are using ChatGPTs. I've used it for simple code to get started with an unfamiliar (but popular) library. I talked with a non-technical friend recently who was using it for relationship advice (with predictably unhelpful responses, it can't tell you the issues you are unaware of, but still). If there's an AI bubble, it's in the early stages. In my mind the over-priced aspect of the market is the complete denial that stock prices at 5% interest rates should not be higher than at 1%, all things being equal. At least not if value = profit / costOfCapital as it is supposed to.

gmm1990 3y ago
After this last run up in stocks despite high interest rates I've completely given up on trying to value based on any metrics.
- prewett 3y ago
  I gave up on that because the valuation formulae all divide by a small number with large uncertainty. Instead I use dividend yield, P/E, P/B, and P/S, all relative to historical values for that company.
HDThoreaun 3y ago
Nvidia's margins are currently 75%. I dont see any way they can possibly keep that up for more than a few years. As soon as a legitimate competitor shows up those margins will be cut in half if not more. Coca cola on the other hand has a very predictable business, with profits extremely unlikely to decline anytime soon.
- prewett 3y ago
  As far as I can tell, 75% is gross margins, and 75% is fairly standard for gross margins. Net profit margins are only 48%, although that is still rather high. I would expect more around 30%, which it looks like their historical net margin has been, so that's a good point. I think it will be hard for competitors in the near-term, unless AMD has something close to ready to go. My understanding is that it takes about 4 years to design a CPU through to manufacturing; GPUs might be quicker since I think they are simpler. I think the current margins are due to higher prices because of demand vs supply. I guess the question is whether demand decreases, and if so, does it decrease first or does a viable competitor arrive first? And even if a viable competitor arrives, does it affect demand? (AMD CPUs have always been cheaper than Intel's, but until recently it did not affect Intel's margins because Intel always had the better process and therefore the performance edge.)

gmm1990 3y ago

After this last run up in stocks despite high interest rates I've completely given up on trying to value based on any metrics.

prewett 3y ago
I gave up on that because the valuation formulae all divide by a small number with large uncertainty. Instead I use dividend yield, P/E, P/B, and P/S, all relative to historical values for that company.

HDThoreaun 3y ago

Nvidia's margins are currently 75%. I dont see any way they can possibly keep that up for more than a few years. As soon as a legitimate competitor shows up those margins will be cut in half if not more. Coca cola on the other hand has a very predictable business, with profits extremely unlikely to decline anytime soon.

prewett 3y ago
As far as I can tell, 75% is gross margins, and 75% is fairly standard for gross margins. Net profit margins are only 48%, although that is still rather high. I would expect more around 30%, which it looks like their historical net margin has been, so that's a good point. I think it will be hard for competitors in the near-term, unless AMD has something close to ready to go. My understanding is that it takes about 4 years to design a CPU through to manufacturing; GPUs might be quicker since I think they are simpler. I think the current margins are due to higher prices because of demand vs supply. I guess the question is whether demand decreases, and if so, does it decrease first or does a viable competitor arrive first? And even if a viable competitor arrives, does it affect demand? (AMD CPUs have always been cheaper than Intel's, but until recently it did not affect Intel's margins because Intel always had the better process and therefore the performance edge.)