Bloomberg | Outperformance by Tech Stocks Is Backed by Earnings
BBG: Asset bubbles tend to be much harder to spot in real time than after the fact because fundamentals are usually at the center of the debate, and the metrics investors focus on can be fluid, according to TS Lombard economist Dario Perkins. “It is easy for tech enthusiasts to claim that ‘it’s different now’ and that fundamental valuations will never be the same again,” he said.
But some fundamentals are always important. For example, compared with the dot-com bubble, today’s AI giants have lower debt-to-earnings ratios than, say, WorldCom Inc. And companies like Nvidia and Meta Platforms are already reporting strong profit growth from AI, which wasn’t necessarily the case in the speculative era 25 years ago.
The potential for credit risk in the AI trade is making some investors nervous. After sold $18 billion in bonds on Sept. 24, the stock plunged 5.6% the next day and it’s down 37% since then. Meta, Alphabet and Oracle will need to raise $86 billion combined in 2026 alone, according to an estimate by Societe Generale.
References
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