“The stock market performance of American technology stocks they brought back memories of the beginning of the 2000s and the historic dot com bubble. But compared to then the cosand they are very different, since the advance of these stocks is supported by solid earnings momentum which grow even faster. To clear the field of the ghosts of the past there is also a llong list of market signals which seem to exclude the risk of a speculative bubble.”
USA, risk of bubble in the technology market?
Thus begins the analysis of Marco Piersimoni, Co-Head Euro Multi Asset of Pictet Asset Management in which he underlines that “the advance of titles technological he doesn't seem to know any stops on Wall Street. One of the symbolic companies of this moment is the American processor manufacturer Nvidia, which managed to exceed the 3 trillion dollar capitalization threshold as only Apple and Microsoft, and not surprisingly two other technology stocks, had managed to do before it . This market trend has stimulated the debate between investors and analysts: are we in the presence of a new technology bubble? The answer is that, at the moment, there are no signs of it.”
Things are different from the 2000s, that's why
“Despite the presence of high share valuations, in fact, these have reached even higher levels in the past. Furthermore, we can observe today how the growth in the prices of technology stocks is generally assisted by a corresponding, if not even more sustained, increase in profits”, goes on Piersimoni underlining that “the first indicator to observe to understand whether we are in the presence of a bubble, moreover, is to understand whether there is an excess of assessment, which however is one necessary but not sufficient condition. In fact, alongside this it is necessary to evaluate whether future profit projections are realistic and whether investors in the markets become irrational by resorting to excessive financial leverage and tolerating very high levels of risk. If we bring these assumptions into the current market context, we can see how, in the United States, the price to earnings ratio is close to 21 times, a value that is well above the average of the last ten years”.
The analysis
The expert explains that “the excess return (ERP) that can be obtained by investing in stocks compared to real 10-year government bonds it is at the lowest level of the last two decades. This means stock valuationsand high, but in any case at levels that remain lower than those observed in 2000. Further elements also suggest that the current prices are in reality supported – for technology stocksl Nasdaq – From one profit growth which goes hand in hand: both, in fact, have recorded an 11-fold increase in the last 20 years. An aspect that has meant that the ratio between price and profits, in reality, has remained substantially stable in the time range analyzed”.
The Nvidia case
The concrete case of Nvidia is further illustrative. In the last year, “the price of his shares grew threefold, but profits multiplied fivefold. This resulted in the price to earnings ratio falling, incorporating a 15% de-rating. Therefore, investors are buying shares of Nvidia at a cheaper valuation than they could a year ago. By looking at the ratings of Oracle, an acompany still in business that was able to overcome the dot com crisis, between 1999 and 2000 saw the price of its shares increase five times, while profits – despite growing by 60% – they did not advance at the same speed, bringing the ratio between price and profit to triple. It follows that, while in 2000 the market was betting on a growth in profits which in reality was not reflected, today the growth of technology stocks occurs at a slower pace than the advance of useful and, paradoxically, the latter have become less expensive”.
Then there are further elements that are not in line with what one would expect to see in the presence of a bspeculative wave. For example, “the net inflows into the stock marketor they should be at high levels and instead they remain around zero. Not even the traditional indicators of investor confidence suggest an excess of optimism in the markets: at the moment, there is neither an excess of confidence nor distrust, just as share allocation compared to bonds it is substantially balanced. Likewise, we do not see an increase in the propensity to carry out mergers and acquisitions among companies. This last factor, historically, reaches high levels during bubble periods: to the point that, corresponding to the crisis of Lehman Brothers, the volume of BUT had reached a level almost double the average, while today volumes are recorded around the average or slightly higher. Finally, it doesn't wake up concerns not even the level of debt of American families, which in relation to gross domestic product remains at very low levels. Likewise, the level of credit provided is also below historical levels and this suggests the absence of excess leverage financial within the system”.
A bubble that isn't there
As an operational indication, “we can therefore conclude that from an overall examination of the stock markets they do not emerge in a clear manner signs of a speculative bubble, as it was in 2000, 2007 and partly also in 2021. It is therefore correct to invest in the stock markets as long as you have an adequate investment horizon, necessary to overcome the inevitable volatility of the stock markets. A valid alternative is to use strategies flexible investments who manage exposure to various markets smoothing out its volatility.”
