5D·

Is the tech sector and therefore a large part of the US markets in a bubble? 💥 I have concerns but not fears:

At first glance, the market seems contradictory. Profits are rising, margins are reaching new highs - and yet warning signals are piling up.

So: Where do we really stand?

The fundamental basis is more solid than many people think.

Earnings expectations in the $CSPX (+0.87%) S&P 500 are rising continuously, most recently by double digits over the course of the year. Companies are earning more, working more efficiently and benefiting from structural trends such as automation and AI.

The forward P/E ratio is above the historical average - but not at a classic bubble level. Crucial:

Rising profits have underpinned a significant part of the share price increases fundamentally.

Beneath the surface, things look different.

The number of stocks with extremely high price-to-sales ratios and simultaneous price gains of over 100% has risen sharply - and now accounts for an unusually large proportion of the Russell 3000.

Historically, such concentrations have mainly occurred in late market phases: Dotcom 2000, Meme-Stocks 2021. In both cases, significant corrections followed.

The decisive difference to the dotcom era:

Back then, profits were an expectation.

Today they are reality.

The major indices are dominated by highly profitable companies with real cash flows. This reduces the risk of a complete collapse - but does not protect against significant corrections in the speculative segments.

What this means for investors:

The biggest risk lies not in a general overvaluation of the market as a whole, but in the high dependence on individual narratives - especially AI and tech. A lack of market breadth is a classic feature of late bull phases. If expectations in these segments are not met, the very areas that have recently risen the most could drag the market as a whole down with them.

Conclusion:

Solid fundamental basis + speculative exaggerations in sub-segments = a market phase that is simultaneously underpinned and vulnerable. Those who understand this can take a more differentiated position - instead of being blindly bullish or unnecessarily defensive.

And now to you: do you see the market as healthy or as a ticking time bomb? Or just like me - both at the same time? 👇

10 Comments

Chris@Multibagger

You have to be very vigilant. If signals like today's from Open AI pile up, it will very quickly go down not 2% but 30%. The bubble is different. It lies more in the circular transactions between the big players. The moment (that it comes is out of the question for me, when? no idea) when the broad market comes to the realization that the huge investments in AI are not worthwhile for the companies, it goes down very quickly. So always work with hedges. It won't be a crash, but rather a prolonged major correction of 30-40% in the tech sector.

•

Klein-Anleger@Klein-Anleger

@Multibagger However, I could well imagine that if the progress and initial positive effects of AI reach the companies, and if profit growth continues as expected - then we may not see the 30 to 40 percent correction. At least not because of a bubble in the AI sector. If, like Michael Burry, you always predict a 30% crash, it is clear that you will be right at some point. That's why I'm more bullish for the time being - but so are you, as far as I know 😅

•

Alfred E.@Papiertiger

@Multibagger Let us know if you want us to sell NVIDIA 🥳

•

Tenbagger2024@Tenbagger2024

Accenture has opted for Copilot (Microsoft's AI). Now Accenture has spoken of savings of up to 20% or more after the test phase. I think that illustrates a bit where we are right now, in my opinion just at the beginning.

•

Alfred E.@Papiertiger

@Tenbagger2024 Saleforce has laid off 4,000 people and said everything works with AI in B2B support and now recently another 1,000 and we are not talking about normal support but also 3rd level at the lowest technical levels at the customer.

The fact that the actual strength also lies in the very good support of customers who have paid millions of euros annually was probably less important than driving up costs/margins. Course 🆙

We will see in the next 1-2 years whether the bet works out or whether customers are happy to go elsewhere, even if it's just SAP.

•

Tenbagger2024@Tenbagger2024

@Papiertiger It will still be very exciting

•

TAHT@TAHT

I don’t see it as healthy, especially not considering the current geopolitical circumstances. None of this is sustainable.

•

Basti92@BavarianLion

I remember last year around November when everyone was talking about an AI bubble and that the CapEx of Mag7 was too high! Yesterday ATH NVIDIA and Alphabet... so at the moment I don't see a bubble yet, but of course that doesn't mean that it could "pop" in the tech sector at some point! I think you always have to look at everything realistically and not through rose-tinted "there's more to come" glasses!

•

fund_navigator_elshq@fund_navigator_elshq

I like to buy with all my might when the others trigger dips. If in doubt, zoom out.

••

DumpMoney@DumpMoney

The tech sector has been in a permanent bubble for at least 15 years ... there are crash warnings every year, and ATHs are regularly reached at new ATHs.

••