NVIDIA and Tesla are massively over valued right now. Both of them have valuations based on their potential for the future but the very real competition to both now makes their inevitable dominance a very far from sure thing bet. Tesla's brand is tarnished and their tech is lagging far behind global competitors and NVIDIA is seeing real competition from AMD, finally. Compute is too fundamental for a single company to hold all the cards. I can agree with the 'don't take every little blip seriously' mindset but there are real fundamental problems in the big players in the market right now that should cause concerns.
> Five years before Enron Corp. collapsed in a big accounting scandal, an executive joked at a party about making “a kazillion dollars” through something he humorously dubbed “hypothetical future value accounting”
NVIDIA's forward P/E ratio is approximately 29.94, indicating the price investors are willing to pay for each dollar of estimated future earnings. This ratio is lower than its trailing P/E of around ~53. How are they overvalued? They're making more money than ever in a rapidly growing new industry that is completely changing the landscape of the entire world.
“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?”
Written some time ago by the CFO of a company that was making more money than ever in a rapidly growing new industry that was completely changing the landscape of the entire world. (Not investment advice - it could be different this time.)
> How are *they* overvalued?
By the way, you forgot to mention that TESLA's forward P/E ratio is approximately 203.39, indicating the price investors are willing to pay for each dollar of estimated future earnings. This ratio is lower than its trailing P/E of around ~259.
This morning [Merrill Lynch computer hardware analyst and long-term Sun Micro bull Steve Milunovich] increased his price target to $140 a share, or 42 times his fiscal 2000 earnings estimate of $3.30 a share on sales of $13.9 billion. For fiscal 1999, he expects the company to have earnings of $2.79 a share and sales of $11.62 billion. "Sun is increasingly at the heart of Internet computing. Its stubbornness in developing its own technology is paying off," says Milunovich.
Again, since revenue is the denominator in sales ratio, you are conflating what the OP said...
The difference here and between the .com bubble is these companies have high earnings. They are literally walking cash cows and are printing money... AKA the earnings, with revenue not being important here because that's what CAUSED the .com crash. (High revenues, but absolutely burning money).
NVIDIA is in the business of selling shovels to the gold miners in this scenario, not the gold miners themselves.
One exception i will grant you, is they started giving away some of their tools on equity (investments in openAI, stargate, etc. are very circular), and then will turn around and sell that back to them at their prefered COGS+Profit.
> The difference here and between the .com bubble is these companies have high earnings. They are literally walking cash cows and are printing money...
The difference between you and me is that I know that Sun Microsystems was not burning money and had a price to earnings ratio similar to Nvidia now.
What are “these companies” by the way? Do you mean Tesla?
Sun microsystems was mainly selling to startups, who could go bankrupt. Nvidia is selling to Oracle, Microsoft, Apple, Tesla, Xai and to some extent Google. Excluding potential bubbles here which are coreweave, OpenAI, Antrhopic, etc.
And by "these companies" I mean all the companies i just listed excluding the potential bubbles.
They are all making heaps of cash, buying from a company who is also making heaps of cash on each sale. You also have to price in the geopolitical influence of controling such a important piece of tech.
> Sun microsystems was mainly selling to startups, who could go bankrupt. Nvidia is selling to Oracle, Microsoft, Apple, Tesla, Xai and to some extent Google.
Excuse my ignorance, but who are Oracle, Microsoft, Apple, Tesla, Xai, Meta, and Google getting their revenue from?
Ok, if Tesla is literally a walking cash cow so are Ford or GM to name just a couple of companies in the same sector. (Both together are valued at less than one tenth of Tesla and print five times as much cash.)
I agree that it's better that your customers do not go out of business. One should not forget though that they may have other reasons to buy less of the thing you sell or they may prefer to get it from someone else.
What is the track record of these analysts? I don't know of any analysts doing these forecasts which have hold against reality at all in the span of 10 years, if anyone knows of one analyst whose forecasts have held 50% of the time they predicted something in the span of 10 years I'd love to see the data :)
They have always been profitable as a company, and even after all the hype, I would still value them as a "Cash printing machine". Which is what you want when you buy an asset such as a stock.
With the US trying to hyperinflate their debt away, the only safe havens have proven to be cash generating tech businesses and its going to be that way for the forseeable future. Valuations are only going to get crazier from here.
Google market cap has grown over 50% in the past six months. Nvidia was up nearly 70%. Tesla was in the same ballpark, I can't imagine why. Heck, Meta was up 35%, for no conceivable reason.
So the headline here should be probably less about a small 5% hiccup in that Bitcoin-like trajectory, and more about why the heck is so much money pouring into the sector - including Tesla and Facebook, which aren't on the forefront of anything right now.
You're all implicitly claiming that all assets return nominal value above inflation, which isn't even remotely true when we teach it to pimple-faced undergraduate students.
When you get down into the details, they're all just "things you can own" and the categories like "investment" and "wealth store" start to look very made up.
No, because while cash loses value, so do many assets. Simply putting money into assets instead of cash doesn't mean you make more money. You might, but you might also lose more money.
No, they haven't. You're thinking specifically about how the US market has been lucky enough for that to occur.
There is absolutely nothing intrinsic about that happening as a guarantee. Look at other countries' stock exchanges.
There have also been periods of time in US history where your equities would have lost catastrophic value as you were ready to retire and all of a sudden you wouldn't have been able to draw down on your retirement without a blend of income from somewhere else.
Cash loses value every year. This has been true for every currency. We don't have late 20th century inflation but people who know basic personal finance do not want to hold too much cash right now.
Cash loses value at a relatively predictable rate. Equities and other assets gain and lose value at unpredictable rates. There are different rates and different predictabilities. When investors are happy, equities skyrocket to the moon; when investors are unhappy, they crash. US equities in the last 100ish years had an amazing upwards run that is atypical of anywhere else, anywhen else, or any other asset class; is that expected to continue or is it just survivor bias?
Stocks tend to go upwards much more than cash, in the long term, even accounting for crashes. But those crashes are still big. IIRC, if you buy right after a big crash, you get about twice as much stock for the same price, and skip ahead 10 years (25% of the complete duration of the game) compared to someone who bought right before. I haven't run the numbers but I'm assuming that means it's worth holding only cash for 10 years if you're sure there will definitely be a crash some time in that 10 years. That's a best case scenario but 10 years of retirement is not something to be gambled lightly.
Equities also lose and gain value. There's a reason to hold cash when it's preferrable to lose real, time and inflation-adjusted, value versus losing to speculative equities or other securities.
But go ahead, downvote me since you and the rest seem to think any asset is better than cash.
Which, of course, once again, isn't true.
You can buy bonds with real coupon rates worse than inflation; you can buy speculative equities whose YoY return nets negative.
But yeah, cash is bad, cash is bad. Buy assets no matter the value!
Go buy Pokémon cards! Right? I mean you guys are so smart, why hold cash? That's basic personal finance!
I bet you also like to tell people "don't time the market, it's time in the market," right?
There's no such thing as the "Lost Decades," that's a spooky Halloween story.
In fact, you're right, go invest in Keurig Dr. Pepper, or no no, how about Kraft Heinz. Those did so well compared to just holding cash.
What about real estate, huh? How about AirBnB? That better enough than cash for you? Not a fan of real estate?
How about Warner Bros Discovery? Yeah? That better than cash?
You could have lost money constantly on GameStop, but wait, there's more, you can go still lose money on it today! Why hold cash?
> I bet you also like to tell people "don't time the market, it's time in the market," right?
That's right.
> In fact, you're right, go invest in Keurig Dr. Pepper, or no no, how about Kraft Heinz. Those did so well compared to just holding cash.
You're either trolling me or don't know anything about modern personal finance. If you're willing to get out of your cave and open your worldview a little bit, I recommend reading the Bogleheads wiki.
Your argument is also flawed, as cash still lost some of its value. As it always did.
Also, comparing cash to investment in specific companies stock is an unfair comparison. USD vs S&P500 index is a fairer comparison.
It's fine if you yourself prefer to hold cash for whatever personal reasons you have, but please stop talking nonsense. A comparison of any currency in the world vs a roughly diversified index would invalidate all your points.
> It's fine if you yourself prefer to hold cash for whatever personal reasons you have, but please stop talking nonsense. A comparison of any currency in the world vs a roughly diversified index would invalidate all your points.
Which is a sign the government has printed way too much money. What are they doing to fix it? Printing more...
There's actually an imbalance going on - the government has printed way too much money towards the stock market, and way too little towards the basics of a stable society, which is why there are symptoms of too much money and too little money simultaneously.
6 months seems like a carefully cherry-picked number there, it is basically middle of the the trough of the tariff-induced market collapse that started 7 months ago and had been recovered from 5 months ago. That explains about 20 percentage points.
The USD is down about 10% this year. Anything USD-denominated needed to go up by 10% just to stay even in real terms.
So you're looking at a 30%-ish baseline for that specific 6 month interval. That's basically where Meta (etc) are. Of the larger outliers:
Nvidia continued growing at >50% YoY, and their largest customers announced increased capex spending plans.
Google's valuation had been depressed by uncertainty from ongoing anti-trust cases. One of them got resolved (and the day the remedies were announced is exactly when Google's share price decoupled from Microsoft, Amazon and Meta).
Tesla, because they are the closest company to having a nation-sized fleet of autonomous taxis earning them some amount of revenue. Their autonomous driving system is roughly on-par with Waymo, but requires significantly less hardware, is already installed and running on millions of cars shipped since 2023 (HW gen4), and they have an established path to subsidizing the capex cost by selling these cars to consumers, then taking a percentage of self driving revenue (in addition to any centralized Waymo-like strategy they may concurrently run, like their pilot program in Austin). This is a wicked combination that has tons of stairstep potential lasting decades, as they work with regulators (well, whatever regulators are left) and expand the technology into other domains like semis.
In comparison: Waymo has awesome technology, but logistically, they open, like, a small subset of one new city every year. Tesla has the logistics; Waymo doesn't. And there's no third company in the west that's even close.
You should always assume that everything you read on Hacker News is the opinion of the individual typing it, unless otherwise properly cited. That's your responsibility.
I've done three 500 mile trips with it this year, and on one of these trips I challenged myself to never disengage, except when within just a few meters of the superchargers, home, or the destination. It did it. And the other two, I probably disengaged only a couple times on the other trips, mostly for stylistic reasons ("I wouldn't drive in the left lane here, that's a bit aggressive" kind of stuff). All in all I have ~6,000 FSD miles this year I'd estimate. Day-to-day, every once in a while if the lane markers are faded or something it might take the wrong lane across intersections, but its supremely good at making mistakes safely and recovering.
Its so good that its boring now. I show it to people and they're amazed for the first ten minutes, then they forget about it. "Wait, you weren't driving? That was the car?" It just works. I've literally fallen asleep, accidentally, for a very short time (it has attention monitoring, but its not good). There's an initial moment of panic when I woke up & realized that happened, but then I was like... why? That panic felt like a trauma relic my mind has held on to from driving other cars. In this car, there was zero risk. It was no different than the 500 mile zero-interaction journey I had done the month before. It doesn't need me in the drivers seat.
The only thing it struggles with is when there's debris on the road, or potholes. It'll usually just hit it. But even this is improving; yesterday I noticed a squirrel running across the road, and the car very subtly applied the brakes, before the squirrel cleared the other side, and the car continued at its normal speed. It was exactly what I would have done; maybe the squirrel doubles-back, so you need to prep your speed to be in a place where you can brake. It might have, if the squirrel had decided to do this. I have no doubt they will iron these problems out, because a year ago the list of "situations it struggles with" would have been this entire post.
But if you're not interacting with this technology every day, you have no idea. The future is here, its just not evenly distributed. But, these things have a way of happening slowly, then all at once.
Tesla has a fundamental leadership problem. Few CEOs spend so much time enthusiastically enraging and attacking their potential customer base. (Not to mention politicians, unions, etc.) I’ll be in the market for an electric vehicle soon but there is no fucking way I’m spending money on anything Musk-related ever again, and I’m hardly an abberation. It will be a massive albatross around the company’s neck until Musk is no longer associated with them.
On the other hand, nobody hates Waymo. In fact, people largely love Waymo. When it comes to consumer technology, this is a massive differentiator.
You're in the vanishing minority on that, and it isn't going to materially impact Tesla's sales going forward. They reported delivering a record number of vehicles in their most recent quarterly report. People have the attention span of a gnat.
Fire sale from expiring EV credits. Sales massively down in Europe and China. It’s almost inevitable that BYD and ilk will eventually eat Tesla’s lunch: the cars are cheaper, better, sexier, and have comparatively little political baggage.
Anecdotally, in my circles, Tesla isn’t even part of the conversation anymore when it comes to cars. No sign of any reversal of sentiment.
(With that said, I have no desire to bet against a meme stock.)
Simple. No one can predict where the next breakthrough will come from or what it will be, but everyone feels it will come.
This is also not like the other bubbles. It feels more like working on nukes or CRISPR but without the barrier to entry and constraints on rate of change. Market loves fast feedback loops. They can actually feel and touch this stuff unlike other game changers.
Meta's last earnings absolutely ripped, their stock jumped 11%, and somehow the stock's P/E ratio went down. I honestly think the market sleeps on Meta. I guess they really hate them investing so much in wearables/AI/metaverse stuff, but they just make so much god damn money I truly think they don't know what to do with it.
Google was severely undervalued for quite a while. It's current pe is only less than 25.
While other mag7 might have inflated valuation, google was undervalued for a long time. There are quite a lot people bet Google would bounce back and the risk was low
As another comment pointed out, P/E 25 is still absolutely insane. Realistic ordinary numbers are more like... 5 - since that means with 100% of the company's earnings going to dividends, it would take you 5 years to break even. 100% of the company's earnings don't go to dividends, though, so probably 10 years or more. Which is about the longest that a company that pays the highest dividends it can could be expected to last.
A P/E of 25 only makes sense if we expect Google to pentuple its earnings. Already one of the biggest companies on the planet, become five times as big? It seems preposterous.
>why the heck is so much money pouring into the sector - including Tesla and Facebook
The names you pulled out have Size factor in common, and with the modern market cap weighted index/futures dominated market, flows into Size factor have a close correlation with overall liquidity flows. That's a broad phrase, but if you're talking about the narrative over the past 6 months (most human readable market narratives are bunk, but some are sound) you mainly watched the system deleverage and then releverage, which constitutes a major flow of liquidity. With 7% daily real moves, extreme implied volatility, and more concrete geopolitical uncertainty, portfolio risk metrics from any angle light up and risk has to be taken down. Not just hedge funds and traders (although they exert significant influence), but the more broad equity space as well, such as say pension funds who are in portfolios that target a yearly volatility band (vol targeting), or trend followers (500 billion and highly levered), and of course regular people who for either emotional or other reasons can't take the heat.
Since the tariff shock, realized and implied volatility have come down, which mechanically drives a bid from the vol-targeting world, and gives more buying power to any entity who has a volatility budget (and to some degree everyone does), and that forms trends which bring traders and trend followers back in, and of course allows the construction of new narratives which most humans always like to have before committing capital.
The points of extremely high leverage and extremely sharp deleveraging (panic selling) are often excessive in nature. It's a cycle that repeats, in an ongoing auction and price discovery process that never ends. Better to just look at longer term averages if you want to strip those aspects out. But that does beg the question of why this cycle continues to persist, and the answer is quite simply that dynamically targeting exposure can be profitable even with the obvious drawbacks. Selling volatility makes money. Following trends also makes money, and in trend following most of the profit comes from the extreme moves that you would think are the most dangerous (ex: gold recently, or equities themselves - mechanical trend followers have been increasingly net long equities until exposure started coming down within the past few weeks).
The recent selloff had about 150 billion in forced selling from realized and implied volatility exposed entities: "Taking a look at Nomura's estimated "Index Rebalancing Projection” proxy which is an aggregation of SPX Options Dealer positioning / Greeks hedging, Leveraged ETF rebalancing and Vol Control deallocation flows: -$88.9B for Spot ~-2% move (which nearly doubles to -$151.0B in a -3% slide... which is pretty much where the Nasdaq is right now)." (from Friday)
Ex: The portfolio I run has a volatility selling component, and it's been cranking on that for months now with fine results. Typically as this goes on, human fallacies creep in. Look at incentives, which are usually defined in yearly terms, which leads to traders and portfolio managers feeling like they have "house money" to gives back when they have high profits somewhere. Then you also have the greed and fear of missing out that builds up as well. AI being "hot" and the gold narrative are headline stories now.
Also remember that modern markets are surprisingly illiquid, which effects both on the downside and the upside. Be careful about assigning a few shares trading at a price to the "price" of the entire bulk of shares. This especially applies to the Teslas of the world that you named, and many of the AI names. People like to extrapolate when they maybe shouldn't be.
You have some other topics you're bringing up. Some of it can see some pushback: I remember thinking Google was dirt cheap 4 months ago. The popular narrative was that AI was going to destroy Google Search, etc, but I thought it was fairly likely AI search blurbs would not be a catastrophe, and then of course Gemini/Google's in house AI prowess was almost entirely ignored despite fairly excellent execution, and more importantly Google Cloud growth was downplayed at the same time it was hyped up at every other cloud company (that's a spread that seemed unsustainable), and then finally YouTube growth and recent expectation beating aspects of the business were downplayed as well. (This was my biggest equity position if you couldn't tell, although it no longer is since the business seems more in line with peers now).
Then you have some obvious statements that the market is making about currency debasement. Equity markets generally perform very strongly in nominal terms during inflationary periods, and many debasement trades like Gold are through the roof. Perhaps the market is just expecting further concentration of wealth at the top and more asset inflation, rather than goods inflation. Another angle of this is that bonds are not looking attractive to people, and there seems to be some desperation for alternatives (I'd say that explains some of the gold run, especially if you personify foreign central banks this way as well, which is arguably true).
How does this fine tune your perspective? Often small drops are followed by more small drops, if it falls by the same amount once per week for 16 weeks should we still not be concerned?
> , if it falls by the same amount once per week for 16 weeks should we still not be concerned?
Correct, you should not be concerned.
Time in market is more important than timing the market.
Remember that when the market falls, you have not lost money, not unless you sell. You may even judge it to be a good buying opportunity since you might assess the new lower price to be more reasonable. Over time, a diversified portfolio will expand in value due to compounding, unless you are not a believer that the future will be better than the past.
Take a look again at the charts - they spell it out clearly.
"Remember that when the market falls, you have not lost money, not unless you sell."
This is such a bad take, lol. It's a thing meme traders say to cope. You absolutely have lost money. You haven't realized the losses, but you are definitely poorer and should re-evaluate your risk tolerances based on your current worth.
You can take loans out using your stock portfolio as collateral. In attempting to do so, as you speak to a bank, they aren't judging you based on your initial capital investment. They're looking at the current valuation of your portfolio - unrealized gains/losses taken into consideration. That makes your current worth very real and tangible without needing to actually realize the gains/losses.
If taxes didn't occur when you realized gains/losses then people would stop saying this phrase. It's just something said to try and prevent anxiousness from increasing your tax burden. Fundamentally, you lose/gain money whenever the things you own change value.
> You absolutely have lost money. You haven't realized the losses, but you are definitely poorer and should re-evaluate your risk tolerances based on your current worth.
They say long ago somewhere far away an astrologer managed to cause a panic by predicting a devastating volcano. People didn't just flee, they sold their homes for nothing, because they were convinced their homes would be under 3 feet of lava soon.
And that brings us to the key question - is your home worth less, just because everyone on the same streat is selling their houses for pennies? Isn't the opinion of the USGS slightly more important than the opinions of the real estate market?
Are your tulips worth less if you bought them in 1636 or were they fairly priced and we're just still waiting on the market to come back to rationality?
It's easy to say that the homes were undervalued in that situation with hindsight. If disaster had actually struck then those prices seem fair. Clearly some people sold their houses just before Pompeii and made out like bandits.
Yes, you can apply a rationale mindset to things and use statistics-based inferences to try and calculate what the "real" value of something is rather than what the current, "market-based" value is and, more often than not, that's likely to serve you better, but black swan events still occur plentifully over a human's lifespan and those events are incredibly difficult to factor in when you need to optimize your wealth for practical usability over a couple of decades.
> Are your tulips worth less if you bought them in 1636 or were they fairly priced and we're just still waiting on the market to come back to rationality?
When you’re broadly invested in the market (diversified portfolio), you’re basically saying to yourself that you are optimistic that the future will be better than today. There will be more prosperity, more peace, more human flourishing. If you believe those things, then it is rational to be invested.
If, on the other hand, you believe the future is doomed, then I supposed it could make sense to withdraw all your money in a defensive move and, I dunno, do something else with it.
I agree that, over a long enough timespan, human innovation is the key driving factor of the overall growth of the stock market and that maximizing exposure to this is the most reliable way to increase wealth.
There's absolutely no guarantees other than that. Yesterday's dip could be the start of the United States' "lost decade." The market could mirror the performance of the Nikkei 225's last 35 years where everyone is underwater for over a generation.
The recent overperformance of the US tech market is an exceptional scenario. People should not be encouraged to believe that if they buy into an exceptional scenario, and continue to blindly hold as their investments go underwater, that it's a sure thing that they will have more money at the time they are forced to exercise for life events. Especially in a time where many investors aren't picking broad, overarching index stocks.
I keep the vast majority (~90%) of my money in total market index funds and do my best to forget about it.
The other 10% I play around with trying to time the market, taking active bets against specific stocks, etc. to sate the desire to feel in control / gamble and I rebalance the positions every couple of years.
The active positions have overperformed my buy-and-hold strategy for as long as I've been doing it. Our economy seems to be driven more on vibes than fundamentals and reading human emotion is more tractable than predicting the future, but it's also really stressful (and fun!) to do. I feel one of the biggest reasons to earn money is so one can spend less time thinking about money. So, I'm averse to having large, active positions since I start to think about my trades all the time and that feels innately unhealthy.
Yes , this is fundamentally an incomplete view , Japan index peaked in 1989 before peaking in again this year, if you bought at the peak it would have taken you 35 years to recover your money.
Past performance is not indicative of future performance
Yes, it's wrong, and it's wrong on such a fundamental level I wonder if people who don't understand it have even given it a minute's thought.
You've lost money regardless of whether it is realized. You can even find a very simple contradiction in what realization even is: if you bought a stock at 100, double up at 90, and now it's 80 and you sell some, how much have you realized?
Your total net worth is the same regardless of whether you thought you realized a unit of -20 or -10.
> If you stay put, it will very likely be recovered AND have grown in time.
You should think about what risk of ruin is here. If your investments keep going down, what's your move? Double up, because it will likely bounce back? I may not agree that the market is efficient, in fact I make a living out of the inefficiencies, but the degree of inefficiency is close to a rounding error: the current price is a decent estimate of the value, incorporating all known information.
It’s a useful intuition pump for value investment (check out Benjamin Graham), it pre-dates meme trading. Due to loss aversion humans are irrational about negative price movements, so you need some cognitive strategy to counteract.
Here’s one example: if you have a 401k, CD, bond, or investment fund your investment is illiquid for some lockup period. Therefore you don’t have to mark-to-market every day.
As a matter of accounting facts, you are not forced to book the loss in this scenario.
> I see lots of times when people lost their life or retirement savings at an age it was inconvenient to do so.
It is very true that it can be very very difficult for someone to absorb a drop in the market when they need that cash, like the case you mentioned.
I also assume that there are many people who have been bitten by this.
However, I have never seen data to suggest that statistically it is worse to be in the market because most people are likely to be hit by a huge drop that wipes out all their retirement savings and so they become destitute. I’m sure there are cases like that, but it is extreme and I would bet a minority of cases.
Most people follow the advice of gradually shifting your portfolio to debt and away from equities as you age, to reduce this risk.
This is large but not a black swan by any means. If you trade NQ for several years or more these movements should not be surprising. Even at after the drop, it is (in my opinion) absurdly overvalued, and has been for 5+years. That said… the advice about the market remaining irrational longer than you can remain solvent applies.
The market has been overvalued for decades. Even the biggest corrections only take it down to a reasonable valuation. There is never a rational buying opportunity... except that people have lived their entire working lives without seeing a reasonable price. (Maybe... 1987?)
It's very likely that Tuesday the market will see a buying opportunity and send it right back towards record territory. Which is insane.
I think there is a genuinely new factor at work: so much money flows into the market that it has bought up all of the possible future earnings.
That was all following reasonable advice, but that advice assumed that the market could absorb all of that money. If too much flowed in new capital opportunities would arise. But even before the AI bubble, that had ceased to hold.
If it’s been “overvalued” for decades, wouldn’t there be a point where we can concede that it is actually valued properly, and it’s your valuation model that needs to adjust, not the market?
Surely there is some time horizon at which we can admit that the market is effectively correct. After 100 years of being “overvalued”, can we call that the real value? 1000 years?
This seems like that meme where the guy is looking in the mirror and telling himself, “you’re not wrong, the market is wrong”[1]
> wouldn’t there be a point where we can concede that it is actually valued properly, and it’s your valuation model that needs to adjust, not the market?
Requires an alternate proposal about how to value stocks, and in aggregate, the stock market at large.
The only reasonable way to value stocks is in their potential, upon purchase, for the purchase price to be returned via dividends issued on future profits (even stock buybacks ultimately justify their price increase on dividends being divided among fewer shareholders).
> After 100 years of being “overvalued”, can we call that the real value? 1000 years?
Stocks are being priced at levels that will require longer than a full human lifetime to return their share price via dividends. "Overvalue" is subjective; some people will be fine with the idea that only their children (or, someday, only their grandchildren, and so on ad infinitum) will see a profit. People will also pay a premium for the liquidity of the stock market compared to less-liquid investments (e.g. real estate).
There is simply too much cash sloshing around compared to the opportunities for return available.
Complete nonsense. Your understanding of investment is entirely flawed. Dividends are one element of the value of a stock, but there are many, many others. Chiefly, the expectation that the stock will rise in value such that you can later sell it for more than you purchased it for.
A parallel to draw very easily is an investment in commodities. Those will never pay a dividend, so therefore they're worthless? Obviously not, you invest in them because you expect their value to rise. Same with a stock.
An asset is worth what someone is willing to pay for it. That is its value. Intrinsic value is an element, but not the most important one.
You also display either a very basic misunderstanding or willful ignorance. There's no gambling involved - investing is not dumb chance. There are real companies behind these purchases with real expectations of future growth and thus increase in value. Or vice versa.
Everyone loves the "you can't beat the S&P" trope, but that's also just ignorance. There's a reason that proprietary trading firms generate more profit per employee than any other business in the world.
> Everyone loves the "you can't beat the S&P" trope, but that's also just ignorance.
This seems like a willful misinterpretation.
They say “you won’t beat the S&P” because maybe some HFT firm with highly secretive and advanced technology and MIT PhD quants might… but you, Mr. Retail McDumbMoney, don’t stand a chance.
I do personally know people who do invest and it is 100% gambling for a lot of small "investors". The only ignorance is to pretend it is not a thing. This point becomes super clear once you start looking at trading apps targeting this market.
> There's no gambling involved - investing is not dumb chance
First a gambling does not have to be a theoretically pure dumb chance in order to be gambling. Second, in practice it basically the same thing as betting on horses used to be.
There is a reason why small investors loose money on their investments on average despite markets going up. Because what they do is not investing.
> There are real companies behind these purchases with real expectations of future growth and thus increase in value.
Oh common, this relationship is quite broken for exactly the most known companies.
The quote should be updated from "Markets can remain irrational longer than you can remain solvent" to "Markets can remain irrational longer than you can remain alive".
At some point, inevitably, bonds have to appear more attractive. Until those, too, get bid up until their coupon rates become effectively worthless compared to bank deposits or worse, inflation.
There seems to be a lot of context missing from mainstream discussions of this. The broader context (afaict) is that after the trade war kicked off in April, the US and China agreed in Madrid in June to hold negotiations and otherwise not take new punitive measures.
Last week, Department of Commerce BIS rolled out a new rule significantly expanding how and to whom export controls against China are applied, especially around semiconductors and other "dual-use" goods. China viewed this as a violation of the Madrid "trade ceasefire" and so this Thursday they turned around and unloaded the cannons of rare earth and other export controls, which if enacted would plausibly hobble the global economy and its AI capex sugar high.
For whatever reason no one took this all too seriously until Friday when Trump flipped out on his truth social post, but the broader context is if anything more concerning because these escalations having been going on under the surface and now both sides are conveying they believe they have escalation dominance.
I think Trump may actually want a deal with China but his admin is filled with China hawks and you obviously cannot have them running around doing their thing if you want a deal.
We've truly arrived at a strange time in history where a 1% drop is a considered a "dip".
> My prediction is we'll be at all time highs again a month from now.
If a global pandemic and a global trade war can't stop the market, seems like nothing will. The market will be bid up until whoever is in charge decides times up.
"If a global pandemic and a global trade war can't stop the market, seems like nothing will."
What will stop the market is the sudden realization (among retirees and near-retirees) that all of this AI bubble talk is relevant to their interests because their equity index exposure is actually 1/3 mag7 exposure.
They will, correctly, decide it is time to reduce equity exposure (possibly to zero, depending on age and situation).
This is, potentially, a recipe for a very abrupt and disorderly rush for the exit.
A lot of people in tech are cheering for tech crash without knowing the consequences. Next crash will bring recession which lasts until the end of Trump administration given that he will never listen to experts. Most engineers will loose jobs and will replaced by new grads when the economy recovers.
Tech industry keeps this economy going. Everyone should thank all those AI investments
It’s wild watching the supposedly most tech savvy place on the internet devolve into gnashing of teeth and wailing over development and progress. Hacker News? More like Grognard Complaints
I've seen it happen numerous times. Everyone cheers the idea of "we need a crash, everything is overvalued" and then when it happens "the billionaires are doing this to us". It's just words. These are just the barnacles of society who are along for the ride.
This was a reaction to the China rare earth news. If and when that resolves it will simply revert back. It may very well be true we are due for a major correction or bubble pop but this wasn’t it.
And to Trump slapping on a 100% tariff. Clearly a great decoupling is going to happen and it will be painful, the question is the timing. This is a plausible brink. From here, all that needs to happen to make it so is nothing. The current policies will do it.
Game theoretic modelling commonly results in early escalation followed by a slower de-escalating as a winning strategy. Fits into the strong-arm approach to politics of exercising power to expand power which the current US administration seems to follow.
Thus, I wouldn't think that decoupling or falling of a cliff is the intended goal.
No matter how many times Trump uses the strategy he literally wrote a book about, the reaction to the initial escalation is always the same. It is remarkable.
I'm not sure this is a plausible brink. The initial "tariff board" situation was 10 times more severe than this, and additionally this is a repeat of the same playbook.
This won't be the start of (further) major decoupling unless it's what China wanted in the first place, and they needed another 6 months of preparation before committing to the path. If China says "Go ahead and tariff us 100%. All rare earth exports and re-experts to the US are banned", then that's when to expect changes that won't be reversed any time soon. Everyone knows that Trump will blindly auto-escalate in response, so China saying so would mean "this is the outcome we prefer" and all that follows from there.
China has spent the last year(arguably the last decade) moving their supply chain to not rely on the US.
Trump is about to bail out a handful of US industries because of it. Specifically agriculture has taken tens of billions of dollars in losses because China entirely stopped importing US soy and other crops in the last year.
Trump's whole shtick is that the world NEEDS the US no matter what. He's absolutely wrong.
China has heavily invested in countries to avoid this exact situation.
It might be weird thing to say, but I eventually ended up finding tariffs and everything related to it "boring". It is getting into "yet again" category. It is announced, re-announced, changed, removed, added again and I dont care about the process of it. It will eventually settle somewhere.
Stock market either react or dont based on how they feel. It has little to do with actual economical impact on companies, it does not seem to care about fundamentals either. It was fine for years with overpriced companies and itches to create yet another bubble.
I get that everybody is hurt in the long term. But until actual investor billionaires class is actually really hurt financially, the rollecoaster will go round and round.
Like battles on the Western Front, the amount of interestingness from the daily headlines does not translate to there being no impact for people on the ground or for yourself over time. The headlines matter not as "was this an interesting story, taken on its own" but more as "in this process that takes years to play out, are we on the path toward a noticeably better or worse state of the world".
Yeah, but yet another tariff we know for sure will change, with yet another market going somewhat down, just so that it can continue trade again with no relation to how economy for average person is doing ... is not even change against what we knew two days ago.
I have come to terms with world becoming worst and likely not getting better in my lifetime again. I know there is no way back, this has already been settled. There is no suspension on where it will all go.
NVIDIA and Tesla are massively over valued right now. Both of them have valuations based on their potential for the future but the very real competition to both now makes their inevitable dominance a very far from sure thing bet. Tesla's brand is tarnished and their tech is lagging far behind global competitors and NVIDIA is seeing real competition from AMD, finally. Compute is too fundamental for a single company to hold all the cards. I can agree with the 'don't take every little blip seriously' mindset but there are real fundamental problems in the big players in the market right now that should cause concerns.
> Five years before Enron Corp. collapsed in a big accounting scandal, an executive joked at a party about making “a kazillion dollars” through something he humorously dubbed “hypothetical future value accounting”
https://www.latimes.com/archives/la-xpm-2002-dec-17-fi-enron...
NVIDIA's forward P/E ratio is approximately 29.94, indicating the price investors are willing to pay for each dollar of estimated future earnings. This ratio is lower than its trailing P/E of around ~53. How are they overvalued? They're making more money than ever in a rapidly growing new industry that is completely changing the landscape of the entire world.
“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?”
Written some time ago by the CFO of a company that was making more money than ever in a rapidly growing new industry that was completely changing the landscape of the entire world. (Not investment advice - it could be different this time.)
> How are *they* overvalued?
By the way, you forgot to mention that TESLA's forward P/E ratio is approximately 203.39, indicating the price investors are willing to pay for each dollar of estimated future earnings. This ratio is lower than its trailing P/E of around ~259.
You are conflating revenues and earnings.
Analysts forecast that NVIDIA’s earnings (and EPS) will grow in the ballpark of ~21.9% annually over the coming years.
> Analysts forecast that
Analyst did also forecast that. (And the company did better than forecast for a while and the stock continued to rise - until it didn’t.)
https://www.forbes.com/1999/03/26/mu4.html
This morning [Merrill Lynch computer hardware analyst and long-term Sun Micro bull Steve Milunovich] increased his price target to $140 a share, or 42 times his fiscal 2000 earnings estimate of $3.30 a share on sales of $13.9 billion. For fiscal 1999, he expects the company to have earnings of $2.79 a share and sales of $11.62 billion. "Sun is increasingly at the heart of Internet computing. Its stubbornness in developing its own technology is paying off," says Milunovich.
> You are conflating revenues and earnings.
Enlighten me, what’s Nvidia’s price to sales ratio?
Again, since revenue is the denominator in sales ratio, you are conflating what the OP said...
The difference here and between the .com bubble is these companies have high earnings. They are literally walking cash cows and are printing money... AKA the earnings, with revenue not being important here because that's what CAUSED the .com crash. (High revenues, but absolutely burning money).
NVIDIA is in the business of selling shovels to the gold miners in this scenario, not the gold miners themselves.
One exception i will grant you, is they started giving away some of their tools on equity (investments in openAI, stargate, etc. are very circular), and then will turn around and sell that back to them at their prefered COGS+Profit.
> The difference here and between the .com bubble is these companies have high earnings. They are literally walking cash cows and are printing money...
The difference between you and me is that I know that Sun Microsystems was not burning money and had a price to earnings ratio similar to Nvidia now.
What are “these companies” by the way? Do you mean Tesla?
Sun microsystems was mainly selling to startups, who could go bankrupt. Nvidia is selling to Oracle, Microsoft, Apple, Tesla, Xai and to some extent Google. Excluding potential bubbles here which are coreweave, OpenAI, Antrhopic, etc.
And by "these companies" I mean all the companies i just listed excluding the potential bubbles.
They are all making heaps of cash, buying from a company who is also making heaps of cash on each sale. You also have to price in the geopolitical influence of controling such a important piece of tech.
> Sun microsystems was mainly selling to startups, who could go bankrupt. Nvidia is selling to Oracle, Microsoft, Apple, Tesla, Xai and to some extent Google.
Excuse my ignorance, but who are Oracle, Microsoft, Apple, Tesla, Xai, Meta, and Google getting their revenue from?
Ok, if Tesla is literally a walking cash cow so are Ford or GM to name just a couple of companies in the same sector. (Both together are valued at less than one tenth of Tesla and print five times as much cash.)
I agree that it's better that your customers do not go out of business. One should not forget though that they may have other reasons to buy less of the thing you sell or they may prefer to get it from someone else.
What is the track record of these analysts? I don't know of any analysts doing these forecasts which have hold against reality at all in the span of 10 years, if anyone knows of one analyst whose forecasts have held 50% of the time they predicted something in the span of 10 years I'd love to see the data :)
since you didn't ask, here's NVIDIA's net income over the last 10 years:
2025 – $72.9B 2024 – $29.8B 2023 – $4.4B 2022 – $9.8B 2021 – $4.3B 2020 – $2.8B 2019 – $4.1B 2018 – $3.0B 2017 – $1.7B 2016 – $0.6B
They have always been profitable as a company, and even after all the hype, I would still value them as a "Cash printing machine". Which is what you want when you buy an asset such as a stock.
With the US trying to hyperinflate their debt away, the only safe havens have proven to be cash generating tech businesses and its going to be that way for the forseeable future. Valuations are only going to get crazier from here.
I asked specifically about forecasts from analysts. I know the financials of Nvidia, I own the stock...
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Google market cap has grown over 50% in the past six months. Nvidia was up nearly 70%. Tesla was in the same ballpark, I can't imagine why. Heck, Meta was up 35%, for no conceivable reason.
So the headline here should be probably less about a small 5% hiccup in that Bitcoin-like trajectory, and more about why the heck is so much money pouring into the sector - including Tesla and Facebook, which aren't on the forefront of anything right now.
People have no idea what to do with their money right now
Yep! The only thing anyone knows for "sure" is that cash is an absolutely terrible place to keep your money right now. Any kind of asset is better.
If you have cash, it may be a good idea to buy in this small downturn. Though I expect there will be more buying opportunities in the coming year.
This isn't true.
You're all implicitly claiming that all assets return nominal value above inflation, which isn't even remotely true when we teach it to pimple-faced undergraduate students.
Cash is not an investment. Cash is a wealth store.
When you get down into the details, they're all just "things you can own" and the categories like "investment" and "wealth store" start to look very made up.
This has been true ever since cash supply was controlled by central banks.
No, because while cash loses value, so do many assets. Simply putting money into assets instead of cash doesn't mean you make more money. You might, but you might also lose more money.
> Simply putting money into assets instead of cash doesn't mean you make more money
I never said that. Cash loses money by design. This is not true of any other asset, for obvious reasons.
However, diversified indexes have historically always outperformed cash especially if we compare long intervals.
No, they haven't. You're thinking specifically about how the US market has been lucky enough for that to occur.
There is absolutely nothing intrinsic about that happening as a guarantee. Look at other countries' stock exchanges.
There have also been periods of time in US history where your equities would have lost catastrophic value as you were ready to retire and all of a sudden you wouldn't have been able to draw down on your retirement without a blend of income from somewhere else.
Don't bother, it's like talking to apes.
This also isn't true.
Cash loses value every year. This has been true for every currency. We don't have late 20th century inflation but people who know basic personal finance do not want to hold too much cash right now.
Cash loses value at a relatively predictable rate. Equities and other assets gain and lose value at unpredictable rates. There are different rates and different predictabilities. When investors are happy, equities skyrocket to the moon; when investors are unhappy, they crash. US equities in the last 100ish years had an amazing upwards run that is atypical of anywhere else, anywhen else, or any other asset class; is that expected to continue or is it just survivor bias?
Stocks tend to go upwards much more than cash, in the long term, even accounting for crashes. But those crashes are still big. IIRC, if you buy right after a big crash, you get about twice as much stock for the same price, and skip ahead 10 years (25% of the complete duration of the game) compared to someone who bought right before. I haven't run the numbers but I'm assuming that means it's worth holding only cash for 10 years if you're sure there will definitely be a crash some time in that 10 years. That's a best case scenario but 10 years of retirement is not something to be gambled lightly.
also, is Bitcoin a currency?
Equities also lose and gain value. There's a reason to hold cash when it's preferrable to lose real, time and inflation-adjusted, value versus losing to speculative equities or other securities.
But go ahead, downvote me since you and the rest seem to think any asset is better than cash.
Which, of course, once again, isn't true.
You can buy bonds with real coupon rates worse than inflation; you can buy speculative equities whose YoY return nets negative.
But yeah, cash is bad, cash is bad. Buy assets no matter the value!
Go buy Pokémon cards! Right? I mean you guys are so smart, why hold cash? That's basic personal finance!
I bet you also like to tell people "don't time the market, it's time in the market," right?
There's no such thing as the "Lost Decades," that's a spooky Halloween story.
In fact, you're right, go invest in Keurig Dr. Pepper, or no no, how about Kraft Heinz. Those did so well compared to just holding cash.
What about real estate, huh? How about AirBnB? That better enough than cash for you? Not a fan of real estate?
How about Warner Bros Discovery? Yeah? That better than cash?
You could have lost money constantly on GameStop, but wait, there's more, you can go still lose money on it today! Why hold cash?
> I bet you also like to tell people "don't time the market, it's time in the market," right?
That's right.
> In fact, you're right, go invest in Keurig Dr. Pepper, or no no, how about Kraft Heinz. Those did so well compared to just holding cash.
You're either trolling me or don't know anything about modern personal finance. If you're willing to get out of your cave and open your worldview a little bit, I recommend reading the Bogleheads wiki.
Your argument is also flawed, as cash still lost some of its value. As it always did.
Also, comparing cash to investment in specific companies stock is an unfair comparison. USD vs S&P500 index is a fairer comparison.
It's fine if you yourself prefer to hold cash for whatever personal reasons you have, but please stop talking nonsense. A comparison of any currency in the world vs a roughly diversified index would invalidate all your points.
Buying or selling stock is always timing the market.
> It's fine if you yourself prefer to hold cash for whatever personal reasons you have, but please stop talking nonsense. A comparison of any currency in the world vs a roughly diversified index would invalidate all your points.
No, it wouldn't.
Huh? The fundamentals have not changed. If you’re that lost then close Reddit and hire an RIA.
Which is a sign the government has printed way too much money. What are they doing to fix it? Printing more...
There's actually an imbalance going on - the government has printed way too much money towards the stock market, and way too little towards the basics of a stable society, which is why there are symptoms of too much money and too little money simultaneously.
6 months seems like a carefully cherry-picked number there, it is basically middle of the the trough of the tariff-induced market collapse that started 7 months ago and had been recovered from 5 months ago. That explains about 20 percentage points.
The USD is down about 10% this year. Anything USD-denominated needed to go up by 10% just to stay even in real terms.
So you're looking at a 30%-ish baseline for that specific 6 month interval. That's basically where Meta (etc) are. Of the larger outliers:
Nvidia continued growing at >50% YoY, and their largest customers announced increased capex spending plans.
Google's valuation had been depressed by uncertainty from ongoing anti-trust cases. One of them got resolved (and the day the remedies were announced is exactly when Google's share price decoupled from Microsoft, Amazon and Meta).
Tesla? I've got nothing.
Tesla, because they are the closest company to having a nation-sized fleet of autonomous taxis earning them some amount of revenue. Their autonomous driving system is roughly on-par with Waymo, but requires significantly less hardware, is already installed and running on millions of cars shipped since 2023 (HW gen4), and they have an established path to subsidizing the capex cost by selling these cars to consumers, then taking a percentage of self driving revenue (in addition to any centralized Waymo-like strategy they may concurrently run, like their pilot program in Austin). This is a wicked combination that has tons of stairstep potential lasting decades, as they work with regulators (well, whatever regulators are left) and expand the technology into other domains like semis.
In comparison: Waymo has awesome technology, but logistically, they open, like, a small subset of one new city every year. Tesla has the logistics; Waymo doesn't. And there's no third company in the west that's even close.
You need to put a "Some people believe that" at the beginning of your message.
You should always assume that everything you read on Hacker News is the opinion of the individual typing it, unless otherwise properly cited. That's your responsibility.
Tesla’s FSD is on par with Waymo?
I've done three 500 mile trips with it this year, and on one of these trips I challenged myself to never disengage, except when within just a few meters of the superchargers, home, or the destination. It did it. And the other two, I probably disengaged only a couple times on the other trips, mostly for stylistic reasons ("I wouldn't drive in the left lane here, that's a bit aggressive" kind of stuff). All in all I have ~6,000 FSD miles this year I'd estimate. Day-to-day, every once in a while if the lane markers are faded or something it might take the wrong lane across intersections, but its supremely good at making mistakes safely and recovering.
Its so good that its boring now. I show it to people and they're amazed for the first ten minutes, then they forget about it. "Wait, you weren't driving? That was the car?" It just works. I've literally fallen asleep, accidentally, for a very short time (it has attention monitoring, but its not good). There's an initial moment of panic when I woke up & realized that happened, but then I was like... why? That panic felt like a trauma relic my mind has held on to from driving other cars. In this car, there was zero risk. It was no different than the 500 mile zero-interaction journey I had done the month before. It doesn't need me in the drivers seat.
The only thing it struggles with is when there's debris on the road, or potholes. It'll usually just hit it. But even this is improving; yesterday I noticed a squirrel running across the road, and the car very subtly applied the brakes, before the squirrel cleared the other side, and the car continued at its normal speed. It was exactly what I would have done; maybe the squirrel doubles-back, so you need to prep your speed to be in a place where you can brake. It might have, if the squirrel had decided to do this. I have no doubt they will iron these problems out, because a year ago the list of "situations it struggles with" would have been this entire post.
But if you're not interacting with this technology every day, you have no idea. The future is here, its just not evenly distributed. But, these things have a way of happening slowly, then all at once.
Tesla has a fundamental leadership problem. Few CEOs spend so much time enthusiastically enraging and attacking their potential customer base. (Not to mention politicians, unions, etc.) I’ll be in the market for an electric vehicle soon but there is no fucking way I’m spending money on anything Musk-related ever again, and I’m hardly an abberation. It will be a massive albatross around the company’s neck until Musk is no longer associated with them.
On the other hand, nobody hates Waymo. In fact, people largely love Waymo. When it comes to consumer technology, this is a massive differentiator.
You're in the vanishing minority on that, and it isn't going to materially impact Tesla's sales going forward. They reported delivering a record number of vehicles in their most recent quarterly report. People have the attention span of a gnat.
Fire sale from expiring EV credits. Sales massively down in Europe and China. It’s almost inevitable that BYD and ilk will eventually eat Tesla’s lunch: the cars are cheaper, better, sexier, and have comparatively little political baggage.
Anecdotally, in my circles, Tesla isn’t even part of the conversation anymore when it comes to cars. No sign of any reversal of sentiment.
(With that said, I have no desire to bet against a meme stock.)
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Thanks for the clarification on where you stand. Flagging and moving on.
Simple. No one can predict where the next breakthrough will come from or what it will be, but everyone feels it will come.
This is also not like the other bubbles. It feels more like working on nukes or CRISPR but without the barrier to entry and constraints on rate of change. Market loves fast feedback loops. They can actually feel and touch this stuff unlike other game changers.
“This one is different” floating in through the window, great signal to get out before the pop.
Meta's last earnings absolutely ripped, their stock jumped 11%, and somehow the stock's P/E ratio went down. I honestly think the market sleeps on Meta. I guess they really hate them investing so much in wearables/AI/metaverse stuff, but they just make so much god damn money I truly think they don't know what to do with it.
On the forefront of regulatory capture.
Google was severely undervalued for quite a while. It's current pe is only less than 25.
While other mag7 might have inflated valuation, google was undervalued for a long time. There are quite a lot people bet Google would bounce back and the risk was low
As another comment pointed out, P/E 25 is still absolutely insane. Realistic ordinary numbers are more like... 5 - since that means with 100% of the company's earnings going to dividends, it would take you 5 years to break even. 100% of the company's earnings don't go to dividends, though, so probably 10 years or more. Which is about the longest that a company that pays the highest dividends it can could be expected to last.
A P/E of 25 only makes sense if we expect Google to pentuple its earnings. Already one of the biggest companies on the planet, become five times as big? It seems preposterous.
>why the heck is so much money pouring into the sector - including Tesla and Facebook
The names you pulled out have Size factor in common, and with the modern market cap weighted index/futures dominated market, flows into Size factor have a close correlation with overall liquidity flows. That's a broad phrase, but if you're talking about the narrative over the past 6 months (most human readable market narratives are bunk, but some are sound) you mainly watched the system deleverage and then releverage, which constitutes a major flow of liquidity. With 7% daily real moves, extreme implied volatility, and more concrete geopolitical uncertainty, portfolio risk metrics from any angle light up and risk has to be taken down. Not just hedge funds and traders (although they exert significant influence), but the more broad equity space as well, such as say pension funds who are in portfolios that target a yearly volatility band (vol targeting), or trend followers (500 billion and highly levered), and of course regular people who for either emotional or other reasons can't take the heat.
Since the tariff shock, realized and implied volatility have come down, which mechanically drives a bid from the vol-targeting world, and gives more buying power to any entity who has a volatility budget (and to some degree everyone does), and that forms trends which bring traders and trend followers back in, and of course allows the construction of new narratives which most humans always like to have before committing capital.
The points of extremely high leverage and extremely sharp deleveraging (panic selling) are often excessive in nature. It's a cycle that repeats, in an ongoing auction and price discovery process that never ends. Better to just look at longer term averages if you want to strip those aspects out. But that does beg the question of why this cycle continues to persist, and the answer is quite simply that dynamically targeting exposure can be profitable even with the obvious drawbacks. Selling volatility makes money. Following trends also makes money, and in trend following most of the profit comes from the extreme moves that you would think are the most dangerous (ex: gold recently, or equities themselves - mechanical trend followers have been increasingly net long equities until exposure started coming down within the past few weeks).
The recent selloff had about 150 billion in forced selling from realized and implied volatility exposed entities: "Taking a look at Nomura's estimated "Index Rebalancing Projection” proxy which is an aggregation of SPX Options Dealer positioning / Greeks hedging, Leveraged ETF rebalancing and Vol Control deallocation flows: -$88.9B for Spot ~-2% move (which nearly doubles to -$151.0B in a -3% slide... which is pretty much where the Nasdaq is right now)." (from Friday)
Ex: The portfolio I run has a volatility selling component, and it's been cranking on that for months now with fine results. Typically as this goes on, human fallacies creep in. Look at incentives, which are usually defined in yearly terms, which leads to traders and portfolio managers feeling like they have "house money" to gives back when they have high profits somewhere. Then you also have the greed and fear of missing out that builds up as well. AI being "hot" and the gold narrative are headline stories now.
The flows above can be modeled: https://ibb.co/zW3PNMYw.
Also remember that modern markets are surprisingly illiquid, which effects both on the downside and the upside. Be careful about assigning a few shares trading at a price to the "price" of the entire bulk of shares. This especially applies to the Teslas of the world that you named, and many of the AI names. People like to extrapolate when they maybe shouldn't be.
__________________________________________________________________________
You have some other topics you're bringing up. Some of it can see some pushback: I remember thinking Google was dirt cheap 4 months ago. The popular narrative was that AI was going to destroy Google Search, etc, but I thought it was fairly likely AI search blurbs would not be a catastrophe, and then of course Gemini/Google's in house AI prowess was almost entirely ignored despite fairly excellent execution, and more importantly Google Cloud growth was downplayed at the same time it was hyped up at every other cloud company (that's a spread that seemed unsustainable), and then finally YouTube growth and recent expectation beating aspects of the business were downplayed as well. (This was my biggest equity position if you couldn't tell, although it no longer is since the business seems more in line with peers now).
Then you have some obvious statements that the market is making about currency debasement. Equity markets generally perform very strongly in nominal terms during inflationary periods, and many debasement trades like Gold are through the roof. Perhaps the market is just expecting further concentration of wealth at the top and more asset inflation, rather than goods inflation. Another angle of this is that bonds are not looking attractive to people, and there seems to be some desperation for alternatives (I'd say that explains some of the gold run, especially if you personify foreign central banks this way as well, which is arguably true).
Google grew partially because got weak penalties in anti monopoly case
Have you read Cory Doctorow's take on this yet?
https://pluralistic.net/2025/09/27/econopocalypse/#subprime-...
Maybe m2 money? But still can’t justify that. https://fred.stlouisfed.org/series/M2SL
Bitcoin is the stable one now
One idea to fine-tune your perspective is to zoom out over time to form an opinion on how reactive to be.
Often you notice that what seems like a big drop is either pretty common or pretty small.
For instance, looking at the Nasdaq Composite over a few time horizons:
- 6mo: https://www.google.com/finance/beta/quote/.IXIC:INDEXNASDAQ?...
- 5yr: https://www.google.com/finance/beta/quote/.IXIC:INDEXNASDAQ?...
- Max: https://www.google.com/finance/beta/quote/.IXIC:INDEXNASDAQ?...
How does this fine tune your perspective? Often small drops are followed by more small drops, if it falls by the same amount once per week for 16 weeks should we still not be concerned?
Fine tuned for what?
> , if it falls by the same amount once per week for 16 weeks should we still not be concerned?
Correct, you should not be concerned.
Time in market is more important than timing the market.
Remember that when the market falls, you have not lost money, not unless you sell. You may even judge it to be a good buying opportunity since you might assess the new lower price to be more reasonable. Over time, a diversified portfolio will expand in value due to compounding, unless you are not a believer that the future will be better than the past.
Take a look again at the charts - they spell it out clearly.
> Time in market is better than timing the market
There’s a fun simulation to illustrate this - for those who think they know better, I encourage you to try it: https://personalfinanceclub.com/time-the-market-game/
"Remember that when the market falls, you have not lost money, not unless you sell."
This is such a bad take, lol. It's a thing meme traders say to cope. You absolutely have lost money. You haven't realized the losses, but you are definitely poorer and should re-evaluate your risk tolerances based on your current worth.
You can take loans out using your stock portfolio as collateral. In attempting to do so, as you speak to a bank, they aren't judging you based on your initial capital investment. They're looking at the current valuation of your portfolio - unrealized gains/losses taken into consideration. That makes your current worth very real and tangible without needing to actually realize the gains/losses.
If taxes didn't occur when you realized gains/losses then people would stop saying this phrase. It's just something said to try and prevent anxiousness from increasing your tax burden. Fundamentally, you lose/gain money whenever the things you own change value.
> You absolutely have lost money. You haven't realized the losses, but you are definitely poorer and should re-evaluate your risk tolerances based on your current worth.
They say long ago somewhere far away an astrologer managed to cause a panic by predicting a devastating volcano. People didn't just flee, they sold their homes for nothing, because they were convinced their homes would be under 3 feet of lava soon.
And that brings us to the key question - is your home worth less, just because everyone on the same streat is selling their houses for pennies? Isn't the opinion of the USGS slightly more important than the opinions of the real estate market?
Are your tulips worth less if you bought them in 1636 or were they fairly priced and we're just still waiting on the market to come back to rationality?
It's easy to say that the homes were undervalued in that situation with hindsight. If disaster had actually struck then those prices seem fair. Clearly some people sold their houses just before Pompeii and made out like bandits.
Yes, you can apply a rationale mindset to things and use statistics-based inferences to try and calculate what the "real" value of something is rather than what the current, "market-based" value is and, more often than not, that's likely to serve you better, but black swan events still occur plentifully over a human's lifespan and those events are incredibly difficult to factor in when you need to optimize your wealth for practical usability over a couple of decades.
> Are your tulips worth less if you bought them in 1636 or were they fairly priced and we're just still waiting on the market to come back to rationality?
When you’re broadly invested in the market (diversified portfolio), you’re basically saying to yourself that you are optimistic that the future will be better than today. There will be more prosperity, more peace, more human flourishing. If you believe those things, then it is rational to be invested.
If, on the other hand, you believe the future is doomed, then I supposed it could make sense to withdraw all your money in a defensive move and, I dunno, do something else with it.
I know which path I choose.
> You absolutely have lost money.
My point is the if you sell, you realize the loss. If you stay put, it will very likely be recovered AND have grown in time.
Do you disagree?
I agree that, over a long enough timespan, human innovation is the key driving factor of the overall growth of the stock market and that maximizing exposure to this is the most reliable way to increase wealth.
There's absolutely no guarantees other than that. Yesterday's dip could be the start of the United States' "lost decade." The market could mirror the performance of the Nikkei 225's last 35 years where everyone is underwater for over a generation.
The recent overperformance of the US tech market is an exceptional scenario. People should not be encouraged to believe that if they buy into an exceptional scenario, and continue to blindly hold as their investments go underwater, that it's a sure thing that they will have more money at the time they are forced to exercise for life events. Especially in a time where many investors aren't picking broad, overarching index stocks.
The problem is you cannot know the future, so you need to make a bet.
What do you bet?
You bet that it becomes increasingly likely to regress to the mean as prices diverge and step in/out as you factor those odds into your bet.
The solution isn't binary. You don't have to be fully exposed/unexposed to the market all the time.
Sorry, I mean what do YOU personally bet specifically.
I keep the vast majority (~90%) of my money in total market index funds and do my best to forget about it.
The other 10% I play around with trying to time the market, taking active bets against specific stocks, etc. to sate the desire to feel in control / gamble and I rebalance the positions every couple of years.
The active positions have overperformed my buy-and-hold strategy for as long as I've been doing it. Our economy seems to be driven more on vibes than fundamentals and reading human emotion is more tractable than predicting the future, but it's also really stressful (and fun!) to do. I feel one of the biggest reasons to earn money is so one can spend less time thinking about money. So, I'm averse to having large, active positions since I start to think about my trades all the time and that feels innately unhealthy.
Yes , this is fundamentally an incomplete view , Japan index peaked in 1989 before peaking in again this year, if you bought at the peak it would have taken you 35 years to recover your money. Past performance is not indicative of future performance
Yes, it's wrong, and it's wrong on such a fundamental level I wonder if people who don't understand it have even given it a minute's thought.
You've lost money regardless of whether it is realized. You can even find a very simple contradiction in what realization even is: if you bought a stock at 100, double up at 90, and now it's 80 and you sell some, how much have you realized?
Your total net worth is the same regardless of whether you thought you realized a unit of -20 or -10.
> If you stay put, it will very likely be recovered AND have grown in time.
You should think about what risk of ruin is here. If your investments keep going down, what's your move? Double up, because it will likely bounce back? I may not agree that the market is efficient, in fact I make a living out of the inefficiencies, but the degree of inefficiency is close to a rounding error: the current price is a decent estimate of the value, incorporating all known information.
I’ve been in the market a very long time and have only withdrawn in order to purchase other assets as part of a proactive diversification strategy.
Very happy with the outcome so far from real experience.
I’m just trying to be helpful. I don’t have skin your financial success and I’m not trying to change your mind.
Did you know that 90% of gamblers quit before they win big? /s
It’s a useful intuition pump for value investment (check out Benjamin Graham), it pre-dates meme trading. Due to loss aversion humans are irrational about negative price movements, so you need some cognitive strategy to counteract.
Here’s one example: if you have a 401k, CD, bond, or investment fund your investment is illiquid for some lockup period. Therefore you don’t have to mark-to-market every day.
As a matter of accounting facts, you are not forced to book the loss in this scenario.
This reasoning only makes sense if you weren’t already investing under the assumption of minor and major swings occurring.
What if it failed for 16 weeks? Would you sell? I think it's better to just ignore this.
There are other impacts from the stock market falling outside of the size of your bag.
Would I sell? No, would I call my family members to make sure they don't need help, or see if they’re concerned about losing their job? Yes,
Zoom out further
When I zoom out all the way, I see lots of times when people lost their life or retirement savings at an age it was inconvenient to do so.
Like I literally don’t get what the original person was trying to say. Yes, if you’re perpetually holding for the long term nothing really matters.
> I see lots of times when people lost their life or retirement savings at an age it was inconvenient to do so.
It is very true that it can be very very difficult for someone to absorb a drop in the market when they need that cash, like the case you mentioned.
I also assume that there are many people who have been bitten by this.
However, I have never seen data to suggest that statistically it is worse to be in the market because most people are likely to be hit by a huge drop that wipes out all their retirement savings and so they become destitute. I’m sure there are cases like that, but it is extreme and I would bet a minority of cases.
Most people follow the advice of gradually shifting your portfolio to debt and away from equities as you age, to reduce this risk.
This is large but not a black swan by any means. If you trade NQ for several years or more these movements should not be surprising. Even at after the drop, it is (in my opinion) absurdly overvalued, and has been for 5+years. That said… the advice about the market remaining irrational longer than you can remain solvent applies.
The market has been overvalued for decades. Even the biggest corrections only take it down to a reasonable valuation. There is never a rational buying opportunity... except that people have lived their entire working lives without seeing a reasonable price. (Maybe... 1987?)
It's very likely that Tuesday the market will see a buying opportunity and send it right back towards record territory. Which is insane.
I think there is a genuinely new factor at work: so much money flows into the market that it has bought up all of the possible future earnings.
That was all following reasonable advice, but that advice assumed that the market could absorb all of that money. If too much flowed in new capital opportunities would arise. But even before the AI bubble, that had ceased to hold.
If it’s been “overvalued” for decades, wouldn’t there be a point where we can concede that it is actually valued properly, and it’s your valuation model that needs to adjust, not the market?
Surely there is some time horizon at which we can admit that the market is effectively correct. After 100 years of being “overvalued”, can we call that the real value? 1000 years?
This seems like that meme where the guy is looking in the mirror and telling himself, “you’re not wrong, the market is wrong”[1]
[1]https://i.imgflip.com/639cj2.jpg
> wouldn’t there be a point where we can concede that it is actually valued properly, and it’s your valuation model that needs to adjust, not the market?
Requires an alternate proposal about how to value stocks, and in aggregate, the stock market at large.
The only reasonable way to value stocks is in their potential, upon purchase, for the purchase price to be returned via dividends issued on future profits (even stock buybacks ultimately justify their price increase on dividends being divided among fewer shareholders).
> After 100 years of being “overvalued”, can we call that the real value? 1000 years?
Stocks are being priced at levels that will require longer than a full human lifetime to return their share price via dividends. "Overvalue" is subjective; some people will be fine with the idea that only their children (or, someday, only their grandchildren, and so on ad infinitum) will see a profit. People will also pay a premium for the liquidity of the stock market compared to less-liquid investments (e.g. real estate).
There is simply too much cash sloshing around compared to the opportunities for return available.
Complete nonsense. Your understanding of investment is entirely flawed. Dividends are one element of the value of a stock, but there are many, many others. Chiefly, the expectation that the stock will rise in value such that you can later sell it for more than you purchased it for.
A parallel to draw very easily is an investment in commodities. Those will never pay a dividend, so therefore they're worthless? Obviously not, you invest in them because you expect their value to rise. Same with a stock.
An asset is worth what someone is willing to pay for it. That is its value. Intrinsic value is an element, but not the most important one.
Yeah many people use stocks as a gambling device. But we are supposed to pretend it is more then a giant casino.
You also display either a very basic misunderstanding or willful ignorance. There's no gambling involved - investing is not dumb chance. There are real companies behind these purchases with real expectations of future growth and thus increase in value. Or vice versa.
Everyone loves the "you can't beat the S&P" trope, but that's also just ignorance. There's a reason that proprietary trading firms generate more profit per employee than any other business in the world.
> Everyone loves the "you can't beat the S&P" trope, but that's also just ignorance.
This seems like a willful misinterpretation.
They say “you won’t beat the S&P” because maybe some HFT firm with highly secretive and advanced technology and MIT PhD quants might… but you, Mr. Retail McDumbMoney, don’t stand a chance.
I do personally know people who do invest and it is 100% gambling for a lot of small "investors". The only ignorance is to pretend it is not a thing. This point becomes super clear once you start looking at trading apps targeting this market.
> There's no gambling involved - investing is not dumb chance
First a gambling does not have to be a theoretically pure dumb chance in order to be gambling. Second, in practice it basically the same thing as betting on horses used to be.
There is a reason why small investors loose money on their investments on average despite markets going up. Because what they do is not investing.
> There are real companies behind these purchases with real expectations of future growth and thus increase in value.
Oh common, this relationship is quite broken for exactly the most known companies.
The quote should be updated from "Markets can remain irrational longer than you can remain solvent" to "Markets can remain irrational longer than you can remain alive".
At some point, inevitably, bonds have to appear more attractive. Until those, too, get bid up until their coupon rates become effectively worthless compared to bank deposits or worse, inflation.
There seems to be a lot of context missing from mainstream discussions of this. The broader context (afaict) is that after the trade war kicked off in April, the US and China agreed in Madrid in June to hold negotiations and otherwise not take new punitive measures.
Last week, Department of Commerce BIS rolled out a new rule significantly expanding how and to whom export controls against China are applied, especially around semiconductors and other "dual-use" goods. China viewed this as a violation of the Madrid "trade ceasefire" and so this Thursday they turned around and unloaded the cannons of rare earth and other export controls, which if enacted would plausibly hobble the global economy and its AI capex sugar high.
For whatever reason no one took this all too seriously until Friday when Trump flipped out on his truth social post, but the broader context is if anything more concerning because these escalations having been going on under the surface and now both sides are conveying they believe they have escalation dominance.
https://www.dowjones.com/business-intelligence/blog/bis-50-r...
https://www.skadden.com/insights/publications/2025/09/new-bi...
https://x.com/chorzempamartin/status/1976712782423712148
https://x.com/pstasiatech/status/1976693586571018586
Yep.
I think Trump may actually want a deal with China but his admin is filled with China hawks and you obviously cannot have them running around doing their thing if you want a deal.
Buy the dip.
M2 money supply going up. Dollar going down.
My prediction is we'll be at all time highs again a month from now.
> Buy the dip.
We've truly arrived at a strange time in history where a 1% drop is a considered a "dip".
> My prediction is we'll be at all time highs again a month from now.
If a global pandemic and a global trade war can't stop the market, seems like nothing will. The market will be bid up until whoever is in charge decides times up.
"If a global pandemic and a global trade war can't stop the market, seems like nothing will."
What will stop the market is the sudden realization (among retirees and near-retirees) that all of this AI bubble talk is relevant to their interests because their equity index exposure is actually 1/3 mag7 exposure.
They will, correctly, decide it is time to reduce equity exposure (possibly to zero, depending on age and situation).
This is, potentially, a recipe for a very abrupt and disorderly rush for the exit.
Nasdaq lost 3.47% and SP lost 2.71%. That's more than 1%, obviously. Very large downwards move.
20% is a "large downward move". 3.47%? Not so much.
> on Nov. 1, would apply export controls “on any and all critical software,” pushing the technology stocks lower after hours.
What sort of software would be impacted by this? Almost anything could be critical depending on the context.
Semiconductor design pipeline software.
That is already under export control, with companies like Huawei already being completely shut out, yet being able to produce.
Obviously plenty of Chinese alternatives exist at this point.
A lot of people in tech are cheering for tech crash without knowing the consequences. Next crash will bring recession which lasts until the end of Trump administration given that he will never listen to experts. Most engineers will loose jobs and will replaced by new grads when the economy recovers.
Tech industry keeps this economy going. Everyone should thank all those AI investments
It’s wild watching the supposedly most tech savvy place on the internet devolve into gnashing of teeth and wailing over development and progress. Hacker News? More like Grognard Complaints
Devolve? People have been complaining about tech valuations and asset prices for the 12+ years I've been here.
That's what banal evil looks like: shallow, clueless, greedy.
I've seen it happen numerous times. Everyone cheers the idea of "we need a crash, everything is overvalued" and then when it happens "the billionaires are doing this to us". It's just words. These are just the barnacles of society who are along for the ride.
At the end of 2023 the Nasdaq 100 was 15000, now it is 24200. The economy was better in 2023, before this "AI" nonsense and all the layoffs began.
The bubble is more isolated than in 2000. If "AI" crashes, tech companies might focus on real progress again.
At the beginning of 2019 the Nasdaq was at 6000 and the economy was even better, with ample jobs in the tech sector.
To paraphrase an old saying incorrectly attributed to Everett Dirksen[a]:
$0.77 trillion here, $0.77 trillion there, and pretty soon we'll be talking about real money.
---
[a] https://en.wikiquote.org/wiki/Everett_Dirksen#Misattributed
This was a reaction to the China rare earth news. If and when that resolves it will simply revert back. It may very well be true we are due for a major correction or bubble pop but this wasn’t it.
And to Trump slapping on a 100% tariff. Clearly a great decoupling is going to happen and it will be painful, the question is the timing. This is a plausible brink. From here, all that needs to happen to make it so is nothing. The current policies will do it.
Game theoretic modelling commonly results in early escalation followed by a slower de-escalating as a winning strategy. Fits into the strong-arm approach to politics of exercising power to expand power which the current US administration seems to follow. Thus, I wouldn't think that decoupling or falling of a cliff is the intended goal.
No matter how many times Trump uses the strategy he literally wrote a book about, the reaction to the initial escalation is always the same. It is remarkable.
I'm not sure this is a plausible brink. The initial "tariff board" situation was 10 times more severe than this, and additionally this is a repeat of the same playbook.
This won't be the start of (further) major decoupling unless it's what China wanted in the first place, and they needed another 6 months of preparation before committing to the path. If China says "Go ahead and tariff us 100%. All rare earth exports and re-experts to the US are banned", then that's when to expect changes that won't be reversed any time soon. Everyone knows that Trump will blindly auto-escalate in response, so China saying so would mean "this is the outcome we prefer" and all that follows from there.
China has spent the last year(arguably the last decade) moving their supply chain to not rely on the US.
Trump is about to bail out a handful of US industries because of it. Specifically agriculture has taken tens of billions of dollars in losses because China entirely stopped importing US soy and other crops in the last year.
Trump's whole shtick is that the world NEEDS the US no matter what. He's absolutely wrong.
China has heavily invested in countries to avoid this exact situation.
I agree, which is why it's plausible that there is a scenario where the bluff is called.
[dead]
Let's add the story floating around crypto twitter about short trades from freshly created anonymous accounts done minutes before Trump's annoucement.
Raking in hundreds of millions in profit. Clearly done by someone with insider knowledge and the intent to cover their tracks.
This brings the nasdaq back to September prices. It’s not a big deal.
It's not. Unless people believe it is, and they get out, bringing it back to August prices. And then more people get worried...
Or people could see a buying opportunity on Monday and erase this all at once. And nobody can say which it will be.
It might be weird thing to say, but I eventually ended up finding tariffs and everything related to it "boring". It is getting into "yet again" category. It is announced, re-announced, changed, removed, added again and I dont care about the process of it. It will eventually settle somewhere.
Stock market either react or dont based on how they feel. It has little to do with actual economical impact on companies, it does not seem to care about fundamentals either. It was fine for years with overpriced companies and itches to create yet another bubble.
I get that everybody is hurt in the long term. But until actual investor billionaires class is actually really hurt financially, the rollecoaster will go round and round.
Like battles on the Western Front, the amount of interestingness from the daily headlines does not translate to there being no impact for people on the ground or for yourself over time. The headlines matter not as "was this an interesting story, taken on its own" but more as "in this process that takes years to play out, are we on the path toward a noticeably better or worse state of the world".
Yeah, but yet another tariff we know for sure will change, with yet another market going somewhat down, just so that it can continue trade again with no relation to how economy for average person is doing ... is not even change against what we knew two days ago.
I have come to terms with world becoming worst and likely not getting better in my lifetime again. I know there is no way back, this has already been settled. There is no suspension on where it will all go.
Kids soft these days complaining about 3% down days /s