Dear investors 

More and more experts and analysts are raising flags that the valuation of the NASDAQ, AI and tech stocks are getting overvalued. Just take a look at research from BogA Global Investment Strategy or reports or articles from Fortune. Both state exceptional high valuations when looking at metrics such as the S&P 500 price-to-book value ratio and the average P/E, but should we be concerned? 

Yes, markets have been heating up significantly over the past months. Especially crypto has been performing outstanding with a new all time high for Bitcoin (BTC) in the past week, at around $124.120 and an astounding rally from Ethereum (ETH). The largest altcoin in the cryptocurrency market managed to climb from $3.380 at the start of August to a local peak of almost $4.800 (a 42% increase in just a couple weeks). 

And also traditional markets are hot. Both the S&P 500 and the NASDAQ are trading near all time highs. With high valuation fears becoming more common, sudden disappointments in the markets have a direct impact. 

The US Product Price Index (PPI) numbers of July came out last week and were higher than expected. This has resulted in a drawback of many AI and tech stocks, for example: Palantir fell over 6,2% in just days and AMD has fallen by 4% since its local high just days ago.Crypto saw some of the hardest hits with Ethereum and Bitcoin falling almost 9% and 9,3% from their local highs last week. 

Let’s consider this question by looking at different metrics presented by top research firms. In the Figure below we can see that the price-to-book value (P/B) is currently higher than during the dot-com bubble (the P/B ratio shows how much investors pay for a company’s net assets). Should we fear another historic crash like the dot-com bubble? 

The problem with this analysis is that the S&P 500 is very different from the 2000's and before. More and more companies in the popular index are tech stocks that tend to have higher valuation multiples, simply because they are not asset intensive and can scale quickly. This leads to a higher P/B ratio.

When looking at the top stocks individually, yes, some have very skewed valuations (for example Palantir) but other AI or tech stocks are validating their valuations with strong growth for now. 

Still, with valuations getting higher it is more likely that more and more people are in profit. As we have said before in previous letters, it is important to plan and stick to your plan. Lock-in profits can help to reduce risks in case a crash occurs in the market, so stay disciplined. 

That’s it for this week.

See you all in the next one!

Disclaimer: At the end of the day, this newsletter is just informational and educational—not financial advice. Always do your own research and invest responsibly, as there is always a risk of losing everything.

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