Tech stocks are more expensive now than during the dotcom bubble

Kolla in förhållandet mellan Nasdaq-100 i förhållande till den bredare marknaden (S&P 500). Fem stycken företag, Microsoft, Apple, Amazon, NVIDIA och Alphabet, står för 45 procent av Nasdaq 100. Det är nära all-time highs. Enligt BofA, Banc of America, är long big tech för närvarande den mest trånga handeln. Bankkrisen har skrämt investerare från bankaktier och som ett resultat vänder sig investerare till teknik för defensiv positionering. Teknikaktier är dyrare nu än under Dotcom-bubblan.

Check out the ratio of the Nasdaq-100 relative to the broader market (S&P 500). Five companies – Microsoft, Apple, Amazon, NVIDIA and Alphabet – account for 45% of the Nasdaq 100. It is close to all-time highs. According to BofA, Banc of America, long big tech is currently the most crowded trade. The banking crisis has scared investors away from bank stocks and as a result, investors are turning to technology for defensive positioning. Tech stocks are more expensive now than during the Dotcom bubble.

It sounds like an oxymoron, but this is not the era of technology stocks. They have strong balance sheets and high free cash flow. They also report better than most people expected during this winning season.

However, there is a catch

This chart is fundamentally misleading. What we have here are ‘weighting charts’. It shows the weighting of the NASDAQ to the S&P500. Keep in mind that the major stocks on NASDAQ are also in the S&P 500. So all this chart says is that the NASDAQ has a greater weight than the S&P500. One should not draw too many conclusions from this.

If we were to add many large companies to NASDAQ vs. S&P500, we would get the same effect. That said, the valuations of the major technology stocks have been pushed too high. The current economic climate does not justify it.

Metrics to look at would be pricing sales, price to book value, free cash flow %, etc. The final result will be a shift away from high technology and back to value which now has very attractive valuation metrics. Rotation seems to be the market mantra of the last year. It is unlikely that the overall averages will break out on the upside or downside. This is what is known as a market for stockpickers.

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