4 ms·

Tech valuations are back to pre-AI boom levels

150 points by akyuu 6mo ago

sfblah 6mo ago
Must be using some strange definition for tech or valuations, because last I'd heard tech was some huge percentage of the S&P 500, and the index has dropped like 10% from its ATH.
- jjmarr 6mo ago
  The definition is the first sentence of the post: > The chart below compares the forward P/E ratios for the S&P 500 and the S&P 500 Information Technology sector. > Tech valuations have compressed from 40x to 20x, and we are back at levels last seen before the AI boom began Forward PE is the ratio of stock price to anticipated earnings. If it's higher, then investors are predicting future growth in a company.
  - techkid 6mo ago
    [dead]
m101 6mo ago
Except they are fundamentally different companies now. Now they have no free cash flow and they are extremely capital intensive industrial businesses. Another note is that this is on forward earnings. What may have just happened is analyst expectations on forward earnings have caught up what markets prices earlier. Forward earnings generally lag pricing, this happens on the way up, and on the way down..
- techkid 6mo ago
  The post defines it clearly: S&P 500 Information Technology sector. That excludes Meta, Alphabet, Amazon – which were moved to Communications and Consumer Discretionary. So the “tech” we’re looking at is more traditional software and hardware (Apple, Microsoft, Nvidia, etc.).
kaycebasques 6mo ago
Aside: why are Alphabet and Meta bucketed into the Communications sector rather than the IT one? Meta kinda makes sense, but Alphabet much less so. Are there any other notable IT companies that aren't actually part of the S&P500 IT sector? Edit: Apparently this happened in 2018 and is known as the de-FAANGing of the IT sector. I.e. FAANG used to all be lumped in a single sector. ^SPX tried to redistribute to spread the companies across different sectors. AMZN is another notable company now outside of IT sector. https://en.wikipedia.org/wiki/Communication_services_sector_reshuffle https://en.wikipedia.org/wiki/Communication_services_sector_...
- trueno 6mo ago
  good point, i think it'd be valuable to bring in more of these companies to this chart. with it narrowly scoped here it's perhaps (likely) not telling the full story. i would imagine theres plenty of ballooned valuations still because of AI
  - kaycebasques 6mo ago
    This also means that the pre-2018 index had a fundamentally different portfolio of companies. So comparing today to anything pre-2018 is apples-to-oranges I recall that there's an "extended tech" ETF that does a pretty good job of actually capturing the whole IT universe. Pretty sure I'm thinking of IGM: https://www.ishares.com/us/products/239769/ishares-north-american-tech-etf https://www.ishares.com/us/products/239769/ishares-north-ame...
    - techkid 6mo ago
      [dead]
    - trueno 6mo ago
      > This also means that the pre-2018 index had a fundamentally different portfolio of companies o true. this is a classic reporting/analytics yoy comparison type blunder, that actually makes graph in OP kind of meaningless. much more surgical comparison is needed here. now i cant help but chuckle at the total absolute that is the headline lol. grab all "IT flavored" companies that exist today, find the ones that existed then, then compare valuations between those two periods. perhaps ignore the S&P "IT" classification entirely since that groupings definition is apparently now just a moving target between 2018 & now :shrug: > Pretty sure I'm thinking of IGM: actually really cool thanks for putting this on my radar
tamimio 6mo ago
AI isn’t a hype anymore, average non technical people hate AI and would rather not to interact with, and tech companies started to realize that AI won’t be the solution for all of their issues, but they still used it as a scapegoat to lower wages regardless. I even noticed now companies are back to ~2022 time in hiring either FT or consultation, from my experience. So hopefully soon we will have dirt cheap prices for ram and other chips.
- riffraff 6mo ago
  I see more and more non-tech people using LLMs. I think none of them are paying for it beyond techies, but this is definitely not because they hate AI.
  - grtteee 6mo ago
    They definitely won’t pay and I’m not sure there is a viable way to inject ads. The way google did it was very sneaky and pretty smart really. They increased the infiltration of ads slowly over time. How do you do this in a chat interface? It’s a bit too ‘in your face’ and less camouflaged. The moment they get hit with an ad they’ll just go to another model - the switching cost is zero.
    - schmookeeg 6mo ago
      I keep waiting for LLM chats to "steer" to a specific vendor's solution (in exchange for that vendor's substantial fee of course) -- so when I ask "is my UPS repairable?" i might get tips to fix, replace the battery (with $VENDOR's chinesium nonsense perhaps), or straight lied to and told the UPS is now e-waste, but consider $VENDOR's sale on UPS's right now over at this link. Perhaps an affiliate link? who knows! I pay for LLMs so I hope they don't leak that crassness into paying clientele -- but... how would I know if they did it subtly? I wouldn't! :/
      - grtteee 6mo ago
        An app that can run queries on all LLM’s at the same time and then figure out which answer is less like an advert might be the solution lol. A bit like ad block plus. Or using open source models.
outside1234 6mo ago
Someone needs to tell OpenAI and SpaceX that
- lostmsu 6mo ago
  And AMD and Nvidia.
refulgentis 6mo ago
So no bubble?
Analemma_ 6mo ago
$GOOG is 2 or 3 times what it was before the AI boom, depending on when exactly you define "pre-AI boom", so this isn't quite the full story. I tended to think Google was undervalued in the early 2020s and people weren't giving enough credit to how dominant e.g. YouTube was, so maybe it's accurate now and Google won't have as strong an AI correction even if one happens.
- hnav 6mo ago
  It’s sitting at ~29 forward/trailing p/e which means that it’s likely to drop 30% if there’s a correction and even more if there’s a broader economic thing going on that causes ad spend to go down.
  - Analemma_ 6mo ago
    That's still less than a lot of other tech companies. And "15 is the natural long-run P/E" is just a rule of thumb, not some kind of iron law.
    - jmalicki 6mo ago
      Something under-appreciated: If you pretend a company is paying out 100% of profits as dividends (which it theoretically potentially could, and is useful as a financial modelling tool), then the inverse of P/E, E/P, is an interest rate on the price of the stock. Ideal P/Es thus shouldn't be flat, they should be tracking long-term bond rates. This isn't an empirical observation, just a theoretical one of what "ideal" should be. But one should rationally expect P/Es to go up when interest rates drop. It is disappointing to me that even Shiller doesn't really consider this much.

150 points by akyuu 6mo ago

Must be using some strange definition for tech or valuations, because last I'd heard tech was some huge percentage of the S&P 500, and the index has dropped like 10% from its ATH.

jjmarr 6mo ago
The definition is the first sentence of the post: > The chart below compares the forward P/E ratios for the S&P 500 and the S&P 500 Information Technology sector. > Tech valuations have compressed from 40x to 20x, and we are back at levels last seen before the AI boom began Forward PE is the ratio of stock price to anticipated earnings. If it's higher, then investors are predicting future growth in a company.
- techkid 6mo ago
  [dead]

m101 6mo ago

Except they are fundamentally different companies now. Now they have no free cash flow and they are extremely capital intensive industrial businesses. Another note is that this is on forward earnings. What may have just happened is analyst expectations on forward earnings have caught up what markets prices earlier. Forward earnings generally lag pricing, this happens on the way up, and on the way down..

techkid 6mo ago
The post defines it clearly: S&P 500 Information Technology sector. That excludes Meta, Alphabet, Amazon – which were moved to Communications and Consumer Discretionary. So the “tech” we’re looking at is more traditional software and hardware (Apple, Microsoft, Nvidia, etc.).

kaycebasques 6mo ago

Aside: why are Alphabet and Meta bucketed into the Communications sector rather than the IT one? Meta kinda makes sense, but Alphabet much less so. Are there any other notable IT companies that aren't actually part of the S&P500 IT sector? Edit: Apparently this happened in 2018 and is known as the de-FAANGing of the IT sector. I.e. FAANG used to all be lumped in a single sector. ^SPX tried to redistribute to spread the companies across different sectors. AMZN is another notable company now outside of IT sector. https://en.wikipedia.org/wiki/Communication_services_sector_reshuffle https://en.wikipedia.org/wiki/Communication_services_sector_...

trueno 6mo ago
good point, i think it'd be valuable to bring in more of these companies to this chart. with it narrowly scoped here it's perhaps (likely) not telling the full story. i would imagine theres plenty of ballooned valuations still because of AI
- kaycebasques 6mo ago
  This also means that the pre-2018 index had a fundamentally different portfolio of companies. So comparing today to anything pre-2018 is apples-to-oranges I recall that there's an "extended tech" ETF that does a pretty good job of actually capturing the whole IT universe. Pretty sure I'm thinking of IGM: https://www.ishares.com/us/products/239769/ishares-north-american-tech-etf https://www.ishares.com/us/products/239769/ishares-north-ame...
  - techkid 6mo ago
    [dead]
  - trueno 6mo ago
    > This also means that the pre-2018 index had a fundamentally different portfolio of companies o true. this is a classic reporting/analytics yoy comparison type blunder, that actually makes graph in OP kind of meaningless. much more surgical comparison is needed here. now i cant help but chuckle at the total absolute that is the headline lol. grab all "IT flavored" companies that exist today, find the ones that existed then, then compare valuations between those two periods. perhaps ignore the S&P "IT" classification entirely since that groupings definition is apparently now just a moving target between 2018 & now :shrug: > Pretty sure I'm thinking of IGM: actually really cool thanks for putting this on my radar

tamimio 6mo ago

AI isn’t a hype anymore, average non technical people hate AI and would rather not to interact with, and tech companies started to realize that AI won’t be the solution for all of their issues, but they still used it as a scapegoat to lower wages regardless. I even noticed now companies are back to ~2022 time in hiring either FT or consultation, from my experience. So hopefully soon we will have dirt cheap prices for ram and other chips.

riffraff 6mo ago
I see more and more non-tech people using LLMs. I think none of them are paying for it beyond techies, but this is definitely not because they hate AI.
- grtteee 6mo ago
  They definitely won’t pay and I’m not sure there is a viable way to inject ads. The way google did it was very sneaky and pretty smart really. They increased the infiltration of ads slowly over time. How do you do this in a chat interface? It’s a bit too ‘in your face’ and less camouflaged. The moment they get hit with an ad they’ll just go to another model - the switching cost is zero.
  - schmookeeg 6mo ago
    I keep waiting for LLM chats to "steer" to a specific vendor's solution (in exchange for that vendor's substantial fee of course) -- so when I ask "is my UPS repairable?" i might get tips to fix, replace the battery (with $VENDOR's chinesium nonsense perhaps), or straight lied to and told the UPS is now e-waste, but consider $VENDOR's sale on UPS's right now over at this link. Perhaps an affiliate link? who knows! I pay for LLMs so I hope they don't leak that crassness into paying clientele -- but... how would I know if they did it subtly? I wouldn't! :/
    - grtteee 6mo ago
      An app that can run queries on all LLM’s at the same time and then figure out which answer is less like an advert might be the solution lol. A bit like ad block plus. Or using open source models.

outside1234 6mo ago

Someone needs to tell OpenAI and SpaceX that

lostmsu 6mo ago
And AMD and Nvidia.

refulgentis 6mo ago

So no bubble?

Analemma_ 6mo ago

$GOOG is 2 or 3 times what it was before the AI boom, depending on when exactly you define "pre-AI boom", so this isn't quite the full story. I tended to think Google was undervalued in the early 2020s and people weren't giving enough credit to how dominant e.g. YouTube was, so maybe it's accurate now and Google won't have as strong an AI correction even if one happens.

hnav 6mo ago
It’s sitting at ~29 forward/trailing p/e which means that it’s likely to drop 30% if there’s a correction and even more if there’s a broader economic thing going on that causes ad spend to go down.
- Analemma_ 6mo ago
  That's still less than a lot of other tech companies. And "15 is the natural long-run P/E" is just a rule of thumb, not some kind of iron law.
  - jmalicki 6mo ago
    Something under-appreciated: If you pretend a company is paying out 100% of profits as dividends (which it theoretically potentially could, and is useful as a financial modelling tool), then the inverse of P/E, E/P, is an interest rate on the price of the stock. Ideal P/Es thus shouldn't be flat, they should be tracking long-term bond rates. This isn't an empirical observation, just a theoretical one of what "ideal" should be. But one should rationally expect P/Es to go up when interest rates drop. It is disappointing to me that even Shiller doesn't really consider this much.