The baseline of certain stocks, can be found at the very bottom of a major financial crisis. For example, after the subprime mortgage crisis in 2008, the fair market value of most stocks, become attractive again for savvy investors at the dip in early 2009.
Following the Covid pandemic in 2020, many stocks have enjoyed a great run-up. Among them, the Magnificent 7 are everyone's favorite. It's sometimes misleading to assume that, once a stock trend takes shape, the same trend will go on forever. Looking back from 2020.03, certain stocks are looking extremely risky in valuation:
For example, NVDA has reached 22X its value since 2020.03, and TSLA is at 11X. If we regard TQQQ as a 3X leveraged stock, TQQQ is at ~5X. So an average tech stock should be fairly valued at ~1.67X. In that estimate, only AMZN and MSFT are not over-hyped.
With potential AGI on the horizon, it makes sense for investors to get excited. I do believe the tech future will be promising in the long run. But at present, it may be a good idea to tread the water carefully, as some of the big waves are clearly in sight.
