E7: NVIDIA AI BUBBLE - We Can't Stay Quiet Any Longer
Summary
TLDRThe video script features an insightful discussion between Larry Tentarelli and Alex, examining whether the current market conditions constitute an AI bubble akin to the dot-com bubble of 2000. Larry, a seasoned investor with firsthand experience during the dot-com era, meticulously analyzes various data points, including stock price movements, valuations, IPO activity, and profitability. Through comprehensive comparisons and historical context, he presents a compelling argument that the current market dynamics, driven by AI and technological advancements, do not mirror the speculative frenzy of the past. Instead, he highlights the robust fundamentals, defensible technology, and high-quality earnings underpinning companies like NVIDIA, suggesting a sustainable trajectory rather than a fleeting bubble.
Takeaways
- đŦ The current tech market conditions are being compared to the dot-com bubble of 2000, but the data shows significant differences that suggest it is not a true bubble scenario.
- đĻ The NASDAQ 100 index has only risen 3x in the past 5 years, compared to a 12x rise during the dot-com bubble, indicating a much slower and more sustainable growth.
- đ¸ The current NASDAQ P/E ratio is 42, which is only a quarter of the 175 P/E ratio during the dot-com bubble peak, suggesting more reasonable valuations today.
- đĻ There were 20+ stocks that rose over 900% during the dot-com bubble, while today's top performers like NVIDIA have seen much slower growth in comparison.
- đ° The IPO frenzy during the dot-com bubble was unprecedented, with an average 70% first-day return and 165 IPOs doubling on their first day, which is not being observed in today's market.
- đĢ NVIDIA's earnings and revenue growth have outpaced its stock price growth, indicating that its valuation is supported by strong fundamentals rather than speculative mania.
- đ¤ The customer base for tech companies today, such as NVIDIA, consists of well-established, cash-rich companies, unlike the dot-com era when many customers were undercapitalized startups.
- đ´ The top 10 companies in the NASDAQ 100 today have 12x higher revenues than the top 10 companies during the dot-com bubble peak, reflecting the maturity and profitability of today's tech giants.
- đĩ Profitability and cash flow generation are a major focus for today's tech leaders, in contrast with the dot-com era's emphasis on potential and unfulfilled promises.
- đĨ While market corrections are always possible, the data suggests that the current tech market conditions are fundamentally different from the speculative dot-com bubble environment of 2000.
Q & A
What is the main topic being discussed in the video?
-The main topic being discussed is whether the current AI and tech stock market rally can be considered a bubble similar to the dotcom bubble of the early 2000s.
Who is the guest being interviewed, and what qualifies him to speak on this topic?
-The guest being interviewed is Larry Tentarelli, who has over 25 years of experience in the financial markets, including working as a licensed broker at Merrill Lynch during the dotcom bubble. He has extensively researched and analyzed the current market conditions and historical data to compare the two market environments.
What are some key differences between the current AI stock rally and the dotcom bubble that the guest highlights?
-Some key differences highlighted include: 1) The magnitude of the NASDAQ 100 index gains (12x during dotcom vs. 3x now), 2) Valuations (NASDAQ P/E of 175 then vs. 42 now), 3) Number of parabolic stocks (20+ then vs. very few now), 4) IPO activity (over 440 IPOs in 1999 with massive first-day pops vs. much lower IPO activity now), and 5) Profitability of leading companies (many unprofitable then vs. highly profitable now).
How does the guest compare Nvidia's performance and financials to Cisco's during the dotcom bubble?
-The guest compares Nvidia's net income of $29.7 billion in fiscal 2024 to Cisco's best year of $2.6 billion net income in fiscal 2000. He also notes that if Nvidia traded at Cisco's peak P/E ratio of 196, it would have a market cap of $5.8 trillion, about twice as big as Microsoft currently.
What is the significance of the quality of customers for companies like Nvidia compared to during the dotcom bubble?
-During the dotcom bubble, many of the customers for companies like Cisco were unprofitable, venture capital-backed startups that eventually went out of business. In contrast, Nvidia's customers today are financially stable, major tech companies like Meta, Tesla, and Google, who are unlikely to go out of business anytime soon.
How does the guest respond to concerns that the current AI stock rally is a bubble?
-The guest acknowledges that stocks can go down at any time, but based on his analysis of historical data and current market conditions, he does not see any evidence that the current AI stock rally meets the criteria of a bubble comparable to the dotcom bubble of 2000.
What lessons did the guest learn from his experience during the dotcom bubble?
-One key lesson the guest learned was the importance of using technical analysis and strict risk management techniques, such as selling stocks when they break below the 200-day moving average, to avoid significant losses during market downturns.
What role does the quality of earnings play in the guest's analysis?
-The guest emphasizes the high quality of earnings for leading AI and tech companies today, with many generating significant cash flow and even paying dividends, in contrast to the mostly unprofitable dotcom companies of the early 2000s.
How does the guest respond to concerns about high valuations for companies like Nvidia?
-The guest notes that while Nvidia's stock has risen significantly, its earnings growth has outpaced its stock price gains, resulting in a lower P/E ratio compared to the start of its current rally. This is in contrast to the dotcom bubble, where stock prices rose much faster than earnings.
What is the guest's overall conclusion about the current AI stock market environment?
-The guest's overall conclusion is that, based on his extensive analysis and first-hand experience, the current AI stock market rally does not exhibit the characteristics of a bubble comparable to the dotcom bubble of the early 2000s, and he expects the rally to continue for longer than most people anticipate.
Outlines
🗣️ Introduction and Background
The speaker, Alex, introduces his friend Larry Tentarelli to discuss whether we are currently in an AI bubble, similar to the dot-com bubble in the late 1990s. Larry shares his background as a licensed broker at Merrill Lynch from 1998 to 2003, experiencing the dot-com bubble firsthand. He explains how he decided to study what happened and develop a technical trading process to avoid similar mistakes.
📈 NASDAQ 100 Performance Comparison
Larry compares the NASDAQ 100 performance between the dot-com bubble period (1995-2000) and the current AI bubble period (2018-2024). He highlights that the NASDAQ 100 went up 12x during the dot-com bubble but has only gone up 3x in the current period, suggesting a much smaller move. He also notes that the current NASDAQ 100 level is only 8% above the 2021 highs, which doesn't indicate a bubble.
💰 Parabolic Stock Movements
Larry discusses the parabolic stock movements witnessed during the dot-com bubble, with stocks like Qualcomm rising 2,619% in 1999 alone and 20 tech stocks rising by 900% or more. He contrasts this with the current market, where only a few stocks, mostly biotechs, have seen such massive gains, and the top performers like Nvidia don't come close to the dot-com bubble levels.
🚀 IPO Frenzy Comparison
The discussion turns to the IPO frenzy during the dot-com bubble, where the average first-day return for internet IPOs was 266% in 1999, compared to 59% for non-internet IPOs. Larry shares examples of IPOs that doubled or more on their first day, with the top 10 averaging a 500% first-day return. He contrasts this with the current market, where he couldn't find any IPOs that doubled on the first day in 2023.
🤯 Speculative Frenzy and Valuations
Larry discusses the speculative frenzy during the dot-com bubble, citing examples of companies like Corvis, which raised $1 billion in an IPO but had no sales and a $27.6 billion market cap. He compares this to the current market, where he doesn't see anything close to that level of speculation or unrealistic valuations.
🆚 Nvidia vs. Cisco Comparison
Larry compares Nvidia's performance and profitability with Cisco during the dot-com bubble peak. He highlights that Nvidia made $29.7 billion in net income last year, 11 times more than Cisco's best year in 2000. Furthermore, Nvidia made more money in 20 days last quarter than Cisco did in their entire best year, suggesting a significant difference in profitability and performance.
💹 Earnings Growth and Valuations
The discussion focuses on Nvidia's earnings growth and valuations. Larry points out that Nvidia's stock price has not risen as fast as its earnings growth, with earnings per share up 764% in the past year while the stock is up only 230%. He argues that this is the opposite of what would be expected in a real bubble, where stock prices would rise faster than earnings growth.
🏦 Revenue and Earnings Comparison
Larry compares the revenues and earnings of the top 10 NASDAQ 100 companies during the dot-com bubble peak in March 2000 with the current top 10. He highlights that the current top 10 companies have total revenues of $1.8 trillion, 12 times greater than the $148 billion total in 2000, while the NASDAQ 100 price is only up 3.7 times. This disparity suggests that the current market is not overvalued compared to the dot-com bubble.
🧑💼 Customer Quality and Financial Stability
An important distinction between the dot-com bubble and the current market is the quality of customers and their financial stability. During the dot-com bubble, companies like Cisco and Sun Microsystems sold to startups with limited capital, which eventually went out of business. Today, Nvidia's customers are financially stable companies like Meta, Tesla, and Amazon, reducing the risk of customer insolvency.
🔍 Personal Experiences and Lessons Learned
Larry shares his personal experiences during the dot-com bubble, including the emotional and financial toll of trading volatile stocks on margin. He discusses the lessons learned, such as implementing a technical trading process and selling stocks when they close below the 200-day moving average to protect capital. He emphasizes the importance of managing emotions and following a disciplined approach.
📊 Data and Research Process
Larry highlights the importance of conducting thorough research and relying on primary sources for data. He explains that his team pulled annual reports and financial statements directly from company websites to compile the numbers used in their analysis, ensuring accurate and reliable information.
🎬 Closing Thoughts and Summary
In closing, Larry summarizes the key points discussed, including the differences in market performance, valuations, IPO activity, earnings growth, and customer quality between the dot-com bubble and the current market. He emphasizes that while stocks can go down at any time, the data and analysis do not support the notion that the current market is in a bubble comparable to the dot-com era.
Mindmap
Keywords
💡Tech Bubble
💡Valuations
💡Parabolic Stocks
💡IPO Frenzy
💡Profitability
💡Earnings Growth
💡Market Capitalization
💡Customer Base
💡Technological Moat
💡Generative AI
Highlights
Larry shares his experience as a broker during the dot-com bubble, living through the massive run-up and meltdown of tech stocks.
Larry discovered technical trading and developed a process using moving averages to manage risk and avoid getting caught in bubbles.
During the dot-com bubble, there were 20 stocks that went up 900% or more in a single year, compared to only 2 stocks today.
In 1999, there were 117 IPOs that doubled on their first day of trading, whereas Larry couldn't find a single one in 2023.
A fiber optics company called Corvis achieved a $27.6 billion market cap with no sales, highlighting the extreme speculation during the dot-com bubble.
Nvidia's net income in fiscal year 2024 was $29.7 billion, 11 times more than Cisco's best year in fiscal 2000 ($2.6 billion).
If Nvidia traded at Cisco's peak PE ratio of 196, Nvidia would have a $5.8 trillion market cap, nearly twice as big as Microsoft.
Nvidia's earnings per share grew 764% in the past 12 months, far outpacing its stock price increase of 230%.
The top 10 NASDAQ stocks today have 12 times higher revenue ($1.8 trillion) than the top 10 in 2000 ($148 billion), but the index price is only up 3.7x.
Unlike the dot-com era, today's leading companies like Microsoft, Apple, and Meta are highly profitable and stable customers for Nvidia's GPUs.
Entire countries and tech giants like Apple are committing to building AI infrastructure, providing a massive market for Nvidia.
Larry emphasizes the importance of analyzing data directly from company sources, as his team did by pulling financial reports from corporate websites.
Larry highlights the key differences between today's market and the dot-com bubble, including valuations, stock price moves, IPO activity, and customer quality.
While not saying stocks can't go down, Larry argues the data shows the current market does not resemble the speculative frenzy of the dot-com bubble.
Larry advises staying open-minded but relying on objective data and analysis rather than emotional reactions when assessing potential bubbles.
Transcripts
so no matter where we turn everybody
seems to think that we are in aom style
Tech bubble I think that this is a
bubble and I don't use that term lightly
we're now you know deeply into into
bubble territory we are living through
just a massive AI bubble So eventually
that suggests that there's going to be a
reckoning so what I decided to do for
this special episode of funding awesome
is bring in my good friend Larry
tentarelli and talk about whether we are
or are not really in an AI bubble the
stock market your time is valuable so
let's dive right into it Larry I think
the first question everyone is going to
have is what the heck qualifies you to
tell us if we're in a bubble right now
sure Hello Alex thank you for having me
on I started in the market in
1998 so I'm going on year number 26 now
I was a series 7 licens broker with
maril Lynch
1998 to 2003 so I actively traded right
through through the run up and then the
run down in the NASDAQ 100 back then so
I lived through the do bubble on a
professional basis and on a daily basis
I made a lot of money I lost a lot of
money but what I decided to do after the
NASDAQ melted down in
2201 I decided to really study what
happened and commit myself to be sure
that that didn't happen to me again
about last May is when I really started
to see the the bubble talk start to show
up on Twitter there was already talk it
was an AI bubble it was a tech bubble
I'd say about 90% of the posts that I
saw were very bearish I've got a
subscription-based website it's a
research website called bluechip
daily.com our subscribers include hedge
fund managers portfolio managers
research analysts Financial uh
journalist and Retail investors some of
our commentary has been featured on CNBC
Barons Bloomberg Reuters and a few other
sources I've been posting for 11 years
since January 2013 and and we've been
fortunate I've developed a follower base
of over 90,000 people and I said to
people I don't think that this is a
bubble whatsoever and I think that this
is going to continue a lot longer than
most people think and now here we are 10
months later and I think the same thing
I don't see a bubble whatsoever based on
my prior experience living through the
dotc bubble we did the research and
compiled the hard data and we're going
to compare all of the numbers from that
bubble in March 2000 versus all of the
numbers today and I think that when your
viewers get done with this video they'll
probably come to the same same
conclusion that there there's nothing
today that looks anything like the
bubble in 2000 so we have somebody who's
not only lived through it but invested
through it on the way up and way down
professionally who's seen all the
emotions tied up with the bubble of 2000
and who's pulled all the cold hard data
and compared it then versus now this
Nvidia Le AI bubble to see if there
really is a pattern here I'm super
excited for it let's dive right into it
here's what I see we're going to talk
about six reasons why we are not in a
tech bubble so first thing NASDAQ 100
1995 to 2000 over a fiveyear period it
went up
12x whoa yeah and we're wait till you
see these charts NASDAQ 100 this 5year
period 2018 to 2024 we're up 3x so 3x is
a good return but it's definitely not
12x number two valuations the NASDAQ
Composite PE in March 2000 was
175 the current NASDAQ PE today is 42 so
if we just look at valuations the
valuation today for the NASDAQ is 76%
lower than it was in 2000 we're going to
talk about some parabolic stocks we're
going to look at IPO activity and then
the big comparison that that I've heard
for over a year now is a lot of people
like to compare Nvidia to Cisco and they
say that you know Nvidia today is Cisco
back in 2000 nowhere near close we're
going to go through the math and then
we're going to talk about profitability
so I want to get started with these
charts I said that not only do I think
that this is not a bubble I said but I
think that this is probably going to go
on much longer than most people think
because these Cycles generally don't end
after a few months it's one thing to
have an opinion
but the numbers really tell the story so
this is a NASDAQ 100 chart
1995 to 2000 and if we take a look in
the bottom leftand corner we can see
1995
37996 the so we'll call it 400 for
simple math over five years we went from
400 to the peak
4,816 this was March 10th of 2000
so from 400 to 4,800 that's a
12x
run in five years and three months so
what I wanted to do is let's take a look
at today's NASDAQ 100 let's take the
same fiveyear look back period and see
how do we compare so this is 2018 to
2024 what I want to do just to be fair
is I want to take the very lowest number
that I can find so we can compare the
run so from
5800 to
17962 that's a 3X run now 3x is nice
over five years but keep in mind
95 to
2000 12x run so if huge difference yeah
so if if we were at the same level today
that the bubble Top in 2012 X the NASDAQ
100 would need to trade for 70,000 right
now yeah very different from where it is
today and Alex here's another
interesting thing if if we take a look
at the nasac 100 today so we're just
under
18,000 right now if we look at the peak
in
2021 we can see the the peak in 2021 was
16764 so so we are less than
8% above the highs in 2021 and I just
think it's difficult to call something a
bubble when it's only 8%
7% over the prior high does that make
sense that does and it's also important
to understand like how much time has
passed since that prior high for
earnings to catch up to these valuations
right so it took well over a year to
reach a new high and in that time these
companies have been growing they've been
adding more to their bottom line they've
been adding more customers right right
Apple's making more money Microsoft is
making more money all these companies
are are making more money as as the
prices going up on the NASDAQ 100 and if
we go back to that chart for a second
you can see from
[Music]
1999 to 2000 this was maybe 15 months
the NASDAQ 100 just it more than doubled
so if the prior Peak was 2500 you're up
at 4,800 I mean just imagine if if the
NASDAQ 100 today doubled in a 12- month
period that's that's what a bubble feels
like yeah yeah completely different
exactly right exactly right so the the
first Viewpoint 12x versus 3x we're
we're just really not anywhere close as
far as the actual move in the market
market so the second thing I want to
take a look at valuation so we're going
to compare NASDAQ Composite March
2000 versus the same thing NASDAQ
Composite today the NASDAQ Composite PE
in March 2000 was
175 the current NASDAQ PE today is 42 so
once again if we're talking apples to
apples we are
1/4 of the valuation in the NASDAQ
today versus at the top in 2000 so just
to give you an idea if if we were at the
same level the NASDAQ today would need
to be at 64,000 and right now it's at
16,000 the
NASDAQ 100 would need to be at least
four or five times higher than it is
today exactly right four times higher
four times higher than it is today right
and by valuations the PE
we're still another factor of four off
right right so whether we're going by
Price or by Price divided by earnings so
far we are nowhere near the.com bubble
levels of 2000 right yeah big difference
here now here's the the next thing the
next point that I wanted to look at
because everybody I think by now is
familiar with super micro smci it's gone
on a really strong run it's been a very
strong stock but Alex here's what I can
tell you in in 988 99 we had 20 super
micros and I'll tell you what I mean
this is from The New York Times and what
this shows this talks about
1999 Qualcomm Rose
2,619 per so it went
26x just in 1999 and and wait till you
see some of these charts that I'm going
to show you 12 other stocks went up at
least
1,000% and a further seven issues went
up at least 900% so you had 20 stocks
that went up
900% or more in one year that is massive
it's that's nuts are these stocks like
from all over the place or are these
like All Tech like what kind of stock
okay were all Tech and we'll take a look
but they were all Tech they were all
internet related so this is from CNET
and this shows if we look here top tech
stocks for1
1999 Qualcomm
26x broad Vision went,
1400% veras sign I think they might
still be around that that was up almost
1200% arm Holdings I wonder if that's
the same arm it is yeah arm's been
public like several times it's been
public then went private then got
acquired then public again okay yeah I
think it's the same arm yeah so that was
up
1,00% all of these stocks were Tech
related internet related some type of
Doom but keep in mind super micro today
that's the the home run hitter super
micro over the past year would barely
crack this top 10 lineup okay so what
about the other stocks like Nvidia and
every other stock that people are
associating with this so-called AI
bubble so in Nvidia over the past year
nvidia's up about
245 per so it wouldn't even be close to
any of these stocks that's an
interesting fact the comments that I see
a lot are this is an Nvidia Le bubble
and sort of what you're saying is NVIDIA
doesn't even meet the criteria to have
this be called a bubble if we're
comparing it to 2000 right Nvidia really
wouldn't even be a blip on the screen
back then so here here's what I mean by
parabolic stocks this is micro strategy
and this is the same micro strategy
that's still around right now this stock
went
45x in a 12-month period 45x so
400% in a 12-month period correct so if
you put $1,000 into it in the middle of
99 your investment was worth
$45,000 less than a year later that is
insane yeah if you put if you got lucky
and you put 10 grand into it you had
450,000 so we're we're talking about
what super micro going going 10x micro
strategy went 45x
Qualcomm went
4200 in 18 months so if we take a look
in 98 October it was trading at a $150
in change
$65. 39 at the peak so this is a 40
2 100% run your your 1,000 would turn
into 42,000 in 18 months and and Alex
I've got to tell you I was in these
stocks I used to I used to trade these
stocks and every single day just imagine
if you had a stock today that went up
4200 per in an 18month period I can't
imag yeah I'm I'm living in the wrong
time man yeah listen the here's the good
news the good news is that I had some
qualcom on the way up the bad news is I
also had some qualcom on the way down
and I thought it would be a good idea to
buy the dip now keep in mind I just
started in the business I think at the
time I was 29 years old and I didn't
really know anything about anything but
when I got started so I started right
about here everything just went up and
we were conditioned just by the dip just
by the dip because it's going to keep
going up so once things started to go
down we just kept buying the dip and we
bought it all the way down and and it
cost a lot of money which by the way is
still largely the message that most
retail investors get today so I'm glad
you're sharing that because that is
something that I think is really
powerful to hear right and the best way
to get better as an investor is to hear
that and understand that you need to
adjust your own strategy accordingly you
know so I'd love to hear a little bit
maybe for a couple minutes just just
what did you learn since then what are
you doing differently now big big
difference great question so I started
to trade here made a lot of money gave
it all back and and once you blow up
your trading account which is what I did
I had no more money left to trade so
this was back in 2002 so I I took a
break from trading for a couple of
months and then I sat down and and I
wanted to figure out just where it went
wrong because
it wasn't Alex it wasn't just me it
wasn't just the the people that I worked
with it was everyone maril Lynch Janice
had a fund called the Janice 20 fund
they might still have it right now maril
Lynch rolled out a product called the
focus 20 it was a u and it was just
basically 20 tech stocks you know norell
and Cisco and these things lost 8090
cents on the dollar so it wasn't just
new investors it was wasn't just the
retail investor so what I decided to do
I wanted to figure
out what could I do again so that I
would feel safe investing my money again
and not go through the same thing so I I
eventually discovered technical trading
I've got a technical process that I
follow that I've worked on for over the
past 22 years right now that I'm very
proficient with it I use moving averages
quite a bit and the key thing is no
matter how good a stock is if I'm
holding a stock and it closes below the
200 day moving average then I sell the
stock I can always buy it back if it
goes back up I looked at these charts
like Cisco and and JDs unase and Intel
and what I found is if the only thing
that I did was just sell those stocks
when they broke the 200 day moving
average and I didn't buy anything and I
didn't buy them I didn't try to found
the bottom I realized if I did that I
would have probably saved 50% 60% of my
capital and that's that's why I use
right now a 100% technical process sure
no that's that's super interesting yeah
so getting back to you know the dot
bubble versus the AI bubble let's talk
about some of these parabolic stocks
yeah let's take a look at today so we
had a quick one JDS unase Alex this was
just 3818 months I shouldn't even be
bringing this one to the table it only
went up 38 fold but here here's where we
are today so I took this information
from finviz and what I wanted to do to
to be because keep in mind I want to be
100% objective I don't want to cherry
pick I want to just take Apples to
Apples so I went into the screener and I
went for the loow hanging fruit so
there's
2,370 stocks in this fin viz database
over 1 billion market cap so I took
stocks that were $1
billion market cap or higher and I took
the top 20 performers so over the past
12 months here's the top 20 performers
so here's super micro up
1,7% over the trailing 12 months the
only stock that's ahead of that is a
very small biotechnology stock $1.4
billion market cap but keep in mind this
stock is up
2400 over the past year which means when
it started this run it was probably what
a $50
million or a $60 million stock so it was
really a micro cap yeah tiny very small
but here's the thing top 20 stocks
remember in
1999 we had 20 household names common
tech stocks 20 20 stocks that were up
900% plus if we go back right now we
only have two stocks that are up 900%
plus and one of them is is a speculative
biotech and the key thing if we go back
on this list you'll see that there's
seven or eight of these stocks are
really biotechs so it's not really the
same Apples to Apples speculative
biotechs versus stocks that were were
very popular back in the day that's a
great Point too so basically what you're
saying is for an AI Le bubble a lot of
the stocks today certainly aren't even
AI stocks correct when I look at these
stocks super micro that's a tech stock
that I think we're all familiar with
Giga Cloud technology that's a very
popular stock I think it's the IBD
number one in their top 50 but then
we've got biotech biotech clean spark in
the in the Bitcoin miners but that's up
400% 500% now keep in mind those are big
moves those are great moves but these
moves are nowhere near 20 stocks up 900%
over the past year I I would say you've
got one you've got super micro so so far
the index is one quarter of the price it
would need to be to be a bubble the
index's valuation so it's pric to
earnings is about one quarter where it
needs to be for it to be a.com Style
bubble and for being an AI Le bubble
there sure aren't a lot of AI stocks
that have made big moves at all and big
is relative because these big moves that
we're looking at today are still much
smaller in order of magnitude smaller in
fact than the moves that many more
stocks that were already bigger made
during the dot bubble do I do I have all
that right so far you you have it
exactly a th% right cool I'm actually
spending a lot of my time just listening
and absorbing like I hope that this is
as useful for the audience as it is for
me because for me yeah go ahead you you
know why and just to take a second the
the key reason I wanted to put this
together I have subscribers on my
website I've got a lot of followers on
Twitter and a lot of people reach out to
me or or they get they get worried
they're like Larry I'm worried that
we're in a bubble so what I wanted to do
because I know in my head that that this
this right now does not feel like what
that felt like what that felt like that
was like being at the Vegas casino maybe
you know the slot machines it was Alex
stocks would go up 100 points a day if
you remember the moves that we had in
super micro uh a couple weeks ago after
earnings when it went from like 370 to a
th000 we were we were having those moves
for a year and a half in 20 30 40
different stocks so when I look at when
I look at Super Micro I'm like hey you
know that that's a that's a great stock
but we just had that every day I mean
that was just par for the course back
then that it's incredible how different
those two environments are and and I'm
glad you're pointing that out right yeah
because in 2000 a large part of my
audience myself included to be honest we
were still in school or at least not in
any sort of financial position to be
watching the stock market to the point
where we're sweating about price action
one way or the other right so hearing it
from somebody who's been in both places
then and now it's great to hear
firsthand yeah it's and and sometimes I
talk to my friend when we talk about the
good old days and now keep in mind those
stocks would also go down 100 points in
a day too so you really you really had
to learn to to manage the volatility but
that's why I really don't get rattled
when I see these moves now we're going
to take a turn to the real speculative
froth so this is something that we
haven't even seen right now and I want
to talk about the IPO frenzy this was in
in
1999 and we're we're going to look at
some big numbers in a minute but the
average internet IPO ended the year
266 per above it its offering price
compared to for non- interet related
IPOs a gain of
59% at the end of the year so if you had
an internet IPO on average you were up
266 per non- internet IPO 59% % so about
a 400% greater return if you were
internet related which is really
interesting we see parallels like that
today right so back then I imagine if
you just changed your name from company
X to company x.com right you saw much
bigger multiple right and what we're
seeing and what we're seeing today x.com
AI instead of x.com to do the same thing
right convince investors you're some
sort of AI company they give you a
higher multiple they they had stamps.com
uh pets you know web van.com where
they're going to deliver groceries
basically this is the IPO frenzy so this
is from a University of Florida study so
what this shows in
1999 there were
446 total IPOs the average first day
return was was just over 70 per. if you
go back the five years before that it
was right around uh
16% 15% 133% then all of a sudden 98 21
99 70% so your average first day was up
70% it it gets better so this is this is
the slide but we put this into a
spreadsheet format to make it a little
bit easier to read so the slide just
quickly for your viewers this is from
the same University of Florida a study
it can be found online but this shows
the top 10 first a pops so the top 10
IPOs average first day return plus
54% first day Wow first first day so and
here's the math so VA
Linux the offering price was $30 a share
it closed the first day $23 9 so up
697 and we did some research I couldn't
find any IPOs whatsoever over the past
year remotely close to this I don't know
if if you off the top of your head know
of any no not at all and I mean now it's
so obvious why there were over 440 IPOs
in a single year back then more than one
per Market Day right even if you start
including things like the fed's interest
rates we are not even close to that
level of IPO activity today right I I
couldn't find we did all the research
but so the globe the globe.com at the at
the
time this was the IPO so
1998 it went up
66% first day and and this was the one
that really got everybody's attention
CNBC was doing coverage all the time
Fortune Magazine everything was a
brokerage commercial but this was the
one from from what I remember that
really started to ring the bell and then
you can see Foundry networks 525
57% aamai technology still at is is a
stock that trades right now that was up
4 58% but that's the top 10 average
first day return plus 500% and and Alex
it didn't matter if they had a business
plan I I would venture to say that that
most of these companies at the time they
came public weren't profitable were not
profitable from what I can remember I've
never seen anything like it I honestly
don't think that I will ever see
anything like this again I don't think
we're I don't think we'll even see that
this time so let's let's double click on
that point for a second you're talking
about companies that don't have business
plans companies with low to no earnings
how does that compare to today you know
are we seeing the same sort of thing for
example stocks with crazy PE ratios can
you walk us through the comparison then
versus now absolutely so a couple things
most of these companies didn't have PE
ratios because they didn't have any
earnings so we're we're going to go to a
company in in just a minute and then
we're going to come back to your
earnings question because I do have that
on a slide so what this shows number of
IPOs that doubled on the first day 1997
there were two all year 98 there were 12
all year in 19 1999 117 IPOs doubled on
their first day of trading wow and if
you add the first quarter of 2000 there
was another 48 so if you look on this on
this graphic here also from the
University of Florida in five quarters
there were 165 IPOs that doubled on
their first day and I don't think Alex I
couldn't find one right now one IPO that
doubled on the first day in 2023 now it
it might be out there and maybe we
couldn't find it but I couldn't find one
definitely not 165 no for sure that is a
great point you know IPOs today we're in
a different IPO environment than we were
in 2000 for sure but still you would
expect great companies like for example
arm yeah right Nob brainer at the heart
of the AI Revolution especially on the
INF inside for Edge devices arm is a
major player in AI at the hardware level
Nvidia another one didn't IPO but still
we're talking about these companies that
are leading the AI Revolution not coming
anywhere close to these kinds of price
moves or multiples right we're not even
close and we're going to take a look in
a few minutes what what we did was we
went back and we did the homework and we
dug up the annual reports for the top 10
companies in the NASDAQ 100 March 10th
of 2000 at the top and what we did was
we charted out what did they do for
revenues what did they do for earnings
and how does that compare with today and
we're going to take a look at that in
just a few minutes but I wanted to
answer your prior question so this is a
headline from
CNN July of 2000 and what this shows
there was a fiber optics company called
corvis they raised a billion dollars in
an IPO but it says the company managed
to obtain a
27.6 billion market cap with no sales
with no sales no sales so forget about
earn forget about having earnings they
had no sales they had two customers that
had that said they might buy $400
million of equipment from them might buy
over a two-year period so this was a
company 20 7 billion market cap no sales
so when we talk about speculative stocks
today that doesn't even come close to
the type of speculation people were
doing no in 2000 right like like I have
two maybe customers right now and I
certainly am not valued at$ 27 billion
right here here's what it was what what
Wall Street figured out was everybody
wanted these stocks so when I was a
broker broker at maril Lynch the way it
worked is maril Lynch and this is all
brokerage firms everywhere you would get
allocated so many shares so many IPO
shares you'd let your best customers get
these IPO shares because let's say I'm
your broker you're you're a big client
of mine and I put uh the globe.com you
know we buy some globe.com at thepo and
it's up 600% on the first day you're
going to do business with me probably
forever and it didn't matter to anyone
that these companies didn't have
earnings it didn't matter that they
didn't have sales because everyone was
just making so much money that they just
wanted to get public as fast as you
could which is very different from what
we're even seeing today right
everybody's being super cautious about
going public if we get to a phase where
you start to see a bunch of startups
start to come public and they've got AI
in their name where AI is their business
plan the way that a real bubble works is
you need to get that that IPO frenzy and
we haven't seen it yet I'm sure that we
will at some point but we just haven't
seen anything even close to it sure and
you know we spent a lot of time talking
about IPOs but don't forget that's
that's just one point out of four so far
right right the index the index is
priced to earnings or it's multiple
we've talked about specific stocks going
parabolic then versus now what parabolic
means and what kind of stocks are going
parabolic right and now IPOs right so
I'm hoping we can cover what I get as
the most biggest comparison next which
is NVIDIA versus Cisco right yes yes and
and you know it's one thing to talk
about companies that are gone that
didn't make any money let's talk about
the the heavy weights let's talk about
the backbone of the current stock market
and obviously we've heard the Nvidia
versus Cisco comparisons so we did some
math and here's what we we found out
Nvidia for fiscal year 2024 which just
ended their net income was $ 29.7
billion so over the past 12 months they
put $ 29.7 billion to the bottom line if
we look at Cisco their best
year fiscal year 2000 they put to the
bottom line 2.6
billion so Nvidia last year that we just
came out of made 11 times more net
income than Cisco did in their best year
but here's the best part last quarter
Nvidia made more money in 20 days last
quarter than Cisco made the entire year
fiscal year 2000 at the very top so even
accounting for inflation these companies
are incomparable
not not even not even close and that's a
good point because Cisco at one time was
the was the biggest stock in the market
they had over a$ 500 billion do market
cap at their Peak but Cisco's PE at the
very top was
196 500 plus billion dollar market cap
made two and a half billion if Invidia
today traded at the same PE
196 that Cisco had at their top Nvidia
would be a $5.8 trillion market cap or
it would be about twice as big as what
Microsoft is right now that is insane
and honestly only about three times
bigger than it is today which is really
funny but it would be nearly a $6
trillion company correct right that's as
as high as some valuations have gotten
we we haven't really seen anything like
that in fact companies are just starting
to crack the three trillion dollar Mark
for the first time yes so yeah here's
the key thing is nvidia's PE today is
actually lower than when it started this
run people talk about Nvidia is a bubble
so we took this from finviz and I want
to take a look at the metrics so what
this shows is that for the past 12
months nvidia's stock is up
23.47% trailing 12 months up 230% but
earnings per share is up
764 per. and then this is for the entire
year so the entire year of 23 versus
fiscal year 24 up 586 per. so the key
thing is that the stock price has not
gone up anywhere near as fast as the
earnings growth that's right and what
you would see in a in a real bubble
would be actually the opposite where
let's say maybe the earnings went up 40%
and the stock goes up 200% do you see
what I mean yeah we would expect higher
multiples if this is a bubble right and
we don't know what's going to happen in
five years we don't know what's going to
happen really in in five days but when
when they look at what the growth is for
the company right now what their Market
is they've got gross margins of 72% is
what it shows here just huge huge huge
numbers so for NVIDIA to be up
230% over the past year but sales and
earnings are up 265 per 764 per. the
it's to me it that's not anything that
looks unfairly valued yeah their their
multiple is actually shrinking if
anything right their PE like you were
saying earlier is lower today than it
was at the start of this run right I
I've never I've got to tell you this
Nvidia is the number three market cap
stock in the market 1.9 trillion I've
never seen a company anywhere even close
to the size of Nvidia that has has put
up these numbers as fast as they have I
I think it it's it's got to be a record
for a company that's this big to have
grown their their sales and their
earnings so fast because keep in mind
they did 60 billion in sales but they
put almost half of it to the bottom line
that's that's an unbelievably High
number they're printing cash yeah oh
give myself a single pat on the back
here this is why it's so important to
understand the science behind the stocks
because if you were watching my channel
18 months ago you saw this from the
technology side before it hit their
balance sheet when we were talking about
nvidia's undisrupted moat the way they
are the kings of parallel Computing and
how the AI Revolution is going to be
powered by gpus right and
accelerators now we're just seeing it in
the bottom line it's great to come full
circle and see this for sure yeah really
it's just great job on your that's how
that's how you and I connected because I
was watching your videos and I said wow
this this guy has he's got the best
videos the most detailed videos that
I've seen but in the year
2000 it was about the promise of
profitability if we take a look at Cisco
and we dug up their annual report so
this is fiscal year 2000 they did 18
billion in sales but they only put to
the bottom line 2.6 billion so if we
compare apples to apples Nvidia just put
11 times more to the bottom line now
Cisco was not even the top earning stock
so in 200000 what we saw was price over
earnings skyrocketing P went way up what
we're seeing with Nvidia is e is going
way up and price is following it right
so the price to earnings ratio is
staying roughly the same if not getting
smaller because earnings is going up
their margins are high they're making a
lot more actual money and getting it to
the bottom line that's why their
valuation is climbing so fast correct
they're yes they're the earnings for
NVIDIA have gone up much faster than the
stock price has and that's why the stock
is moving so much what we did was we
went back and I've got the the data for
this we'll look at that in a second the
NASDAQ 100 the top 10 stocks at the very
Peak March 10th of 2000 so you're going
to see some interesting names Microsoft
Cisco Systems Intel Oracle Sun Micro
Systems is gone Dell is is still here
Qualcomm Yahoo Applied Materials and JDS
unase versus our top 10 today Microsoft
and this is as of yesterday Microsoft
Apple Nvidia Amazon alphabet meta Tesla
broadcom asml and AMD but here's the key
thing in in
2000 if you look at the top 10 stocks
the number one company for Revenue was
actually
Intel 33 billion in Revenue which is a
very good number
if you look at the current number three
right that's Nvidia 60 billion 30 29.7
billion but if you add up the top 10
March 2000 the top 10 in the NASDAQ 100
total
revenues 148 billion but if we add up
the top 10 total revenues today it's 1.8
trillion the revenue news for our
current ndx top 10 is 12 times greater
than what the revenues were in 2000 but
the price of the NASDAQ 100 itself is
only up
370% so sales have gone up 12 fold but
the price of ndx right now is up 3.7
fold so yeah like you said the price has
not gone up as fast as the sales have
which which means basically if we were
in a bubble we would expect the price to
be four times higher right right if we
were in a in a comparable bubble we
would expect the price of the NASDAQ 100
to be a lot higher and here's here's
another key point and there there are so
many the one of the biggest differences
that I see today is in in the year 2000
the these companies like Cisco and
Oracle and Sun Micro Systems all of
these companies that are in this group
they were selling you know all those
IPOs that we talked about that went up
600% and they didn't make any money yeah
well those were the customers of Cisco
and Intel and Oracle they were selling
to you know the globe.com they were
selling to VA Linux that was their
customer base their best customers were
companies that really weren't very well
capitalized they had a lot of venture
capital money but they didn't have a lot
of sales so the problem what happened at
the top here was Cisco Systems they
loaded up on all this Telecom equipment
and then guess what happened their best
customers went out of
business what what we've got right now
when when you look at the quality of
these companies
Microsoft made 82 billion last year
Apple 100 billion meta 39 billion so
some of the biggest customers for
nvidia's gpus Meta Meta is one of their
biggest customers Tesla is one of their
biggest customers look at the financial
stability meta made 39 billion over the
past 12 months guess what meta is not
going out of business so the difference
today is the
customers for these
gpus are are liquid some of the highest
quality companies in the world back in
2000 a lot of these companies that were
buying the gear from Cisco and Sun micro
these were were upstart companies that
didn't have any real Capital that's such
a great Point like it's not just the
quality of earnings it's the quality of
customers too I'm going to steal that
and use that in tons of videos because
yeah I mean Jensen was meeting with a
government officials so there there's a
thing right now called Sovereign
AI where entire countries have made the
decision that they have to build out an
AI Network right away if we look at the
news yesterday Apple decided to scrap
their EV business and they're shifting a
lot of those people to to generative AI
but when you're talking about Apple
making a major commitment to it when
you've got entire countries that have
committed to build out these AI systems
Alex they've got unlimited money it
makes sense technologists talk about
generative AI as if it's the next phase
of the internet yes right so can you
imagine being a country and saying nah
we're not participating in the next
phase of the internet or anyone yeah the
this is not a bubble from a technology
point at all it's it's the next chapter
in The Saga of computing and what we're
seeing is governments catching on giant
companies like apple catching on and
there's only one company right now
really providing the heart of that
infrastructure yeah and it's Nvidia and
the difference between then and now is
Cisco was sort of providing it to
anybody that said they would want it
whether they could afford it or not
right Nvidia charges them charges
$40,000 per GPU they have an insane
premium because they don't have any
competition right and people are paying
that if I'm buying a $40,000 GP GPU it's
because I think I can make more than
$40,000 on it right look at the problems
that Google's having right now that
alphabet's having because of their
struggles with Gemini and with Bard and
you know they they've had problems since
day one with Bard giving out bad
information now they've got problems
with Gemini and alphabet right now I
mean the stock price shows it the CEO is
under a lot of pressure and this is just
one company because they haven't gotten
AI right yeah yeah to your point look
what it's costing them and they're not
building that Hardware themselves either
they're buying it from Nvidia and and
here's the thing
because and Apple's a great example I
think I think Tim Cook's announcement
came at the right time yesterday here's
what it is Apple thought that they
wanted to get into the electric vehicle
business right the the EV business is
not their core competency it's it's
electronic devices so when it comes to
gpus you know AMD they've got they've
got a product that's going to do I think
it's expected to do about 5% % of the
sales of what Nvidia does there's talk
that Microsoft wants to make their own
gpus and meta might make their own gpus
but keep in mind yep it it's such a huge
barrier to entry you know Nvidia has
such a technological lead that guess
just like apple figured out that they
probably weren't best served to try to
make electric vehicles you know Meta
Meta is probably not best served to try
to figure out how to make a GP you
that's going to compete with Nvidia
because guess what it's it's just not
going to happen who's going to beat
Nvidia at their own game I don't know
that's right and it's not about
competing with Nvidia today it's about
catching Nvidia overall in the race so
there's no question that Google
Microsoft meta could eventually make a
GPU as good as what Nvidia has today the
question is by the time they're able to
do that how good will nvidia's current
gpus be right right just like we don't
expect that Nvidia is about to turn
around and make the next Facebook or
Instagram tomorrow or or I mean what
would it say if Nvidia wanted to try to
make an iPhone yeah we would be saying
the same thing about Nvidia there's no
way they're going to catch Apple there's
no doubt they could make an iPhone right
but by the time they come out with it
how good will Apple's actual iPhone be
right it's the same thing here I just
don't see anything and when I go on
Twitter someone will come in and say oh
you know this is a bubble and I'll ask
them you know what data what actual data
data are you looking at today where you
could compare today's market to 2000 and
say it's a bubble I want to be
open-minded because as I said I've I've
got a a subscriber base and they rely on
me for objective information and if it's
good it's good if it's bad it's bad but
I need to tell them you know the actual
facts that I see based on my experience
and that's what I'm sharing with you
tonight I have the same thing here and
it really keeps me up at night because
the more comments I get the higher
prices go the more comments I get that
were in a bubble and the more I stare at
my ceiling late at night and I worry are
my convictions wrong when I talk about
companies like Nvidia and Qualcomm and a
lot of the same companies like Microsoft
and Qualcomm that were even around
during the tech and Telecom bubble and
and here's the thing and and I want to
be very clear for you and for your
viewers I'm not saying that these stocks
can't go down I'm not saying that the
NASDAQ can't go down anything can happen
to make stocks go down at any time but
what the only thing that I wanted to
look at is is this a bubble based on the
definition of what we saw in the year
2000 and I don't think that there's any
number that even compares to it sure and
you know just like stocks can go up 40
50% a couple hundred percent and it not
be a bubble stocks can go down 10 20 30
40% and not it not be a bubble popping
right exactly so exactly you know a
little bit of nuance goes a long way
here right and I live through it you
know how you talk about staying up at
night I used to stay up at night every
night because uh back then in in 99 2000
listen I remember one day I was on
margin I was in this stock called ulex
which was a big day trader stock back
then and there was like a a false report
that I think they had missed earnings or
accounting fraud the stock was down like
40% pre-market and I was on margin and I
think I lost like three month salary
just that morning and I was like like
physically sick I know the feelings that
you have the one thing that I'll say the
people that I've talked to that are
calling this a bubble weren't trading in
the markets back then because the people
that I do talk to that that were trading
back then they don't they don't call
this a bubble but we did our own
research so when we were comparing the
stocks back in March of 2000 we l I had
the research team literally go you can
see this is from Intel's website we
literally went to every company's
website and pulled up their actual
numbers so when when I discussed these
numbers with you we we didn't just take
this off Google we actually did the leg
work and pulled the numbers ourselves
and that by the way doing that is super
important you know we have a small
research team for tier symbol U we do
the exact same thing we start from the
bottom up we go directly to the source
right and we put together our own ideas
about what is going on with the
technology of these companies how
defensible that technology is and how we
expect that defensible technology to
turn into profits and ultimately affect
their bottom line and return money to
shareholders ERS so when we get it wrong
it's because we got it wrong but when we
get it right it's because we got it
right and so that's important for a lot
of reasons one of which is just having
another independent data point to come
to your own conclusions yeah so why
don't we quickly summarize everything
that we've covered so far because it has
been a lot it it has been so quickly we
looked at the charts in 2000 the NASDAQ
100 went 12x over 5 years years today
it's gone 3x so 1/4 of the move the PE
at the peak was
175 the PE today is 42 once again 1/4 of
the valuation when we talk about
parabolic stocks there were 20 stocks
that went up by 900% or more and we
looked at the micro strategies and the
qualcom up 42x and 45x whereas the
closest we've got right now is super
micro I do think Super Micro is up about
17x off the dead lows and that's that's
the number one stock but it it's nowhere
near the 45x or the 42x and and it's
nowhere near 20 of these stocks up over
900% over yeah would almost have to
Triple again to those levels right
that's that's that's absolutely correct
this we talked about the IPO activity
this was this was just really the
biggest thing these companies came
public so fast they ordered all this
gear Cisco made all this gear then the
companies went out of business and then
Cisco was stuck with all the gear same
thing with sun micro we talked about
Nvidia versus Cisco and the key thing is
that if Nvidia traded at Cisco's Peak PE
then it would Nvidia would be a five 5.8
trillion market cap which would equate
in stock price to about
$2300 a share for NVIDIA yeah that's
insane and we also covered by the way
that it's not just nvidia's earnings
that are climbing like crazy they're
also incredibly high quality corre
because the companies that are buying
from them meta Google Microsoft Tesla
Amazon right these companies not only
are not going out of business tomorrow
they're some of the best compan compies
on the planet and they plan to take
these infrastructure Investments and
eventually turn a profit with them
exactly and then we looked at the
profitability and basically this isn't
like in 99 and 2000 where everything was
going to be dotcom and the companies
didn't have any money shareholders are
looking for cash flow meta just
announced that they're going to start to
pay a dividend I think Salesforce
announced tonight that they're going to
start to pay a dividend and and the key
thing is that these companies right now
those leaders of the NASDAQ 100 today
are
cashr and it's just a totally different
environment than what we saw in 2000
it's yeah this is definitely the kind of
research that I love seeing I love
sharing this is the kind of research
that I think can really change people's
lives I'm so happy you came on and you
shared all this with us Alex thank you
so much I'm I'm glad that you invited me
on I think it's a really important
message that you and I had to discuss
tonight and I'm glad that we were able
to get together yeah likewise uh you
want to tell us where we can find you
sure so my my Twitter ID is also the
same as my website so it's Blue Chip
daily so Twitter is bluechip daily and
my website also is bluechip daily.com
and if you visit our website you'll see
some of our technical analysis going
back about five years now that's awesome
well you definitely got a subscriber in
me and I'm sure we'll be working
together in the future and with that
until next time this is ticker simple
you my name is Alex and I'm joined by
Larry and we're reminding you that the
best investment you can make is in
you
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