Good morning and welcome to the new format of Stockopedia’s DSMR!
You will notice a few changes around here today. I hope you like them. There’s a full explanation at this link.
In markets, the Nasdaq fell 2.9% yesterday, as investors try to muster up a little more scepticism against the AI trade:
What’s interesting to me is that the median valuation ratios for this index are expensive, but not at a level that I’d describe as extreme:
Yes, the trailing PE Ratio of 30x is at a level which suggests mediocre future returns.
On the other hand, the forecast PE Ratio of 23.6x, combined with forecast EPS growth of 16.5%, suggests that patient investors might do fine. The PEG is over 1x, but a couple of years of 16.5% growth would bring the valuation down considerably.
To be clear: I do consider sentiment around AI to be consistent with a bubble.
And there are two big reasons to be cautious about the optimistic words I’ve just written.
Firstly, they are based on forecast earnings.
Secondly, they are based on median valuation ratios. Most investors with Nasdaq exposure have very heavy exposure to the top names – Nvidia, Apple, Alphabet, and so on – rather than to the median stock.
In the end, a handful of very large corporations are going to determine how most investors fare. Given the level of concentration in US indexes, I personally prefer for my portfolio to be underweight them.
Overnight market movements:
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The FTSE is up 0.2% at 10,745
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S&P 500 is down 0.1% at 7,655
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Brent crude (December) is up 1.1% at $114.45/bbl
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Gold is down 0.2% at $4,015oz
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Bitcoin is up 0.7% at $81,750
The table is under construction.
Companies Reporting
At the time of publication, GN has a long position in EVOK.
Disclaimer
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