Bubble Basket: Exploring The Astronomical P/E Ratios

Turning our heads to the US tech sector, we try to make sense of the hype. We wondered, basically; just how expensive the tech sector is.

Nvidia NVDA trades at 200x earnings; but AMD AMD trades at 667x earnings. Palo Alto Networks PANW, on the other hand, trades at 367x earnings. You are reading these right! Even on a forward looking basis these equities look expensive — Nvidia trades at 57x earnings, for instance. Find below a “bubble basket” of equities, and their P/E ratio.

• Nvidia: 222x
• Salesforce: 557x
• AMD: 667x
• ServiceNow NOW: 285x
• Palo Alto Networks: 367x
• Dynatrace DT: 142x

Looking at these numbers, you might be tempted to go short. However, we must attach a word of warning about going against the retail friendly sectors of the market, espically as AI is all anyone is currently talking about.

Attached below is Stanley Druckenmiller’s attempt at going short in the 1999 tech bubble — he went short, covered his losses, lost $600M, and then he went long. Then Druckenmiller held for too long (not shown on the graph) and lost $3B. Quoting from the man himself:

“So like around March I could feel it coming. I just – I had to play. I couldn’t help myself. And three times during the same week I pick up a – don’t do it. Don’t do it. Anyway, I pick up the phone finally. I think I missed the top by an hour. I bought $6 billion worth of tech stocks, and in six weeks I had left Soros and I had lost $3 billion in that one play. You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basket case and couldn’t help myself. So, maybe I learned not to do it again. But I already knew that.”

Disclosure: The BlackBull Research US Model portfolio holds financial positions in none of the equities mention in this article. Readers are advised to conduct their own research and consult with a qualified financial advisor before making any investment decisions. The information provided in this article is for informational purposes only and does not constitute financial advice