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The five biggest S&P 500 companies have a combined market capitalization worth nearly $9 trillion ' or almost 25% of the benchmark index.

The top companies include tech giants Apple, Microsoft, Alphabet, Amazon and Nvidia, TheBoomBust.com first reported on Twitter.

Tech stocks have had a smashing start to the year thanks to the hype around artificial intelligence, following the launch of OpenAI's ChatGPT.

Excitement around AI has not only seen a tech war breakout among industry giants including Microsoft, Alphabet and Meta to lead the AI boom, but also a flurry of investors parking their money in stocks best able to take advantage of the AI revolution.

Nvidia has specifically enjoyed the ride to the top, with the Santa Clara-based chipmaker's stock surging 116.55% since the start of 2023, making it the best-performing stock of the year on the S&P 500. The company has a market cap of $773 billion.

https://markets.businessinsider.com/news/stocks/ap...

Is AI now leading tech stocks into a new bubble, much like internet did in 1990s?

Nvidia has moved past Berkshire into 5th place by market cap. It is being touted as the next trillion dollar company set to pass Apple as the most valuable company in a few years.

Remember Cisco in 2000? At its peak it traded at PS multiple of 30. (YES that's PS not PE). Nvidia is a relative bargain at a mere 26 times 2024 sales. 23 years later Cisco, though still a leading networking company, has not yet passd its all time high.

I think I prefer Munger's and Buffett's old fashioned natural intelligence when it comes to investing.

Remember Cisco in 2000? At its peak it traded at PS multiple of 30. (YES that's PS not PE).

I always loved the quote from Scott McNeely, one time CEO of Sun Microsystems, commenting on the bubble in his firms' stock price.

I think it's probably the most Buffett-like paragraph ever penned by a big tech company boss:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight
years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods
sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with
39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on
your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain
the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you
realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any
footnotes. What were you thinking?"

To me, the moral is clear.
When estimating if something is a good investment, always do that specific back of the envelope exercise.
If your own business projections for that firm don't allow a positive ten year return without assuming an implausibly optimistic valuation multiple at the end, don't buy it.


Rather remarkably, on average over time there are around 48 stocks in the main Value Line database that are trading at over 10 times trailing sales, about 3.25% of stocks with the right data.
At the moment it's 86 or 6.0% of the stocks with the appropriate data.

Jim

<Remember Cisco in 2000? At its peak it traded at PS multiple of 30. (YES that's PS not PE)

What if the company is doubling revenue every year for the next 10 years? PS after 10 years would be 30/1024. Not that I think it's a sane assumption

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