Notice how the top stocks suddenly began making insane profit growth after march of 2023? GPT-4, arguably the biggest leap in AI actualization, released on March 14th, 2023. I assume that is when these largest companies (Apple, NVIDIA, Microsoft, Amazon, Meta, Google) started gaining crazy investment for data/AI/processing hardware.
I see it as an inflation of speculative worth of these companies. The value they are providing can in no way be proportional to the rate of growth of their stock. It is just a circulation of their own money being passed through each of those companies' services, and not anything of worth to the consumer.
Meta's profit has increased almost 2x since 2023. Meta makes money from advertisers spending money on Meta. So the profit growth from Meta does very much come from the real economy
The real question is how much further the top tech firms can cut costs, and how much of their expenses they can shift to NVDA. They aren’t growing particularly fast at this point.
Apple is still behind the AI game/story, its stock barely grew from 3T market cap height in 2022. It is treated as a safe investment- i.e. when the bubble pops.
The rest of the pack is feeding on the AI hype train, each supplying their services to pump up the story (analogy): Nvidia on chips (shovels), Microsoft and Amazon on cloud (gold storage), Meta and Google on ads (marketing).
It's unclear from the "post" (what is it with these blogs where entries are like 3 sentences??): did they take current top 10 stocks and project their retuens backwards, or did they look at the retuen of always holding the top 10 stocks in the index?
If the former then duh! Top 10 stocks are top 10 because they were going up! You will see this for any index.
The latter would make sense but given the laconicity of the post, it's pointless to speculate.
Quants are lacking these days - a few notes. pls fix
> forward net income estimates
Its a backward looking chart, use actual profits or eps results (although that can be manipulated through accounting). If the point is that income expectations are low - then are those expectations bourne out in the earnings?
> 3 years
Why only show the chart of the last 3 years? Has it always been like this - text says this wasnt the pattern in the 1960's (and 70's btw) - but there is a 50 year window between then and now that isnt discussed.
this is basically just a normalised pe ratio for top 10 and rest of the index - use that instead.
I sold all my S&P 500 holdings and the majority of my US stocks a while back to diversify internationally. Being so heavily concentrated in US markets felt too risky at the time, so I pivoted to investing in funds, companies, and markets around the world instead
Seeing lots of commenters say they dumped their entire position in SP500. That is probably not the best move
I also felt overexposed to tech and about 80% of my stock portfolio was US total market or SP (basically the same)
I have been dollar-cost averaging slightly out of those positions and into other small-/mid-cap funds. I have decreased my stock allocation as well and moving toward bonds and CDs, which are returning around 4.5-5% guaranteed.
Interested to hear what others who speculate that SP overdue for correction might be doing
I even said the “if the singularity happens does our company even matter” in discussion about our AI heavy startup.
If you think the world is ending maybe you should not plan your cap table but actually invest in shotgun shells
Am I reading the chart wrong, or does it show that the S&P500 ex-top 10 stocks increased by 20% over 3 years? That would be a historically average and very reasonable return.
As someone who knows very little about finance, is there any ETF available which acts as a middle-ground between market-cap weighted and equally-weighted funds? The very high concentration of tech and AI in the S&P 500 at the moment makes me uncomfortable, but equal-weight seems too drastic to me. A fund where the weighting is done by the square root of the market cap feels like it would make sense but I can't find anyone doing this.
I think even a square root cap approach alone is not very balanced.
There are ETFs that consider fundamentals, such as book value, cash flow, and sales. In these fundamental-weighted ETFs, AI companies that burn large amounts of cash are rated much lower compared to their weighting in market cap-based ETFs.
Seems like a portfolio balanced by P/Es would do most of what you want.
If Tesla has a 200 P/E and MSFT has a 40 P/E, and the s&p has an average of 20, you'd have 1/10th the Tesla and 1/2 the MSFT shares as a traditional ETF.
Maybe do a portfolio of S&P 500 ex mag 7, market cap and equal weight and see if you can get the aggregate weights to match (within reason) sqrt weights.
A commonality to most of them (and to a lesser extent all of them) is they write software.
If a company not on the list like Ford has an F-150 truck come off the assembly line, some of that $40,000 cost is in the capital expenditure for the plant, any automation it has, the software in the car and so on. But Ford has to pay for the aluminum, steel and glass for each truck. It has to pay for thousands of workers on the assembly line to attach and assemble parts for each truck.
Meanwhile, at Apple a team writes iOS 18, mostly based on iOS 17, and it ships with the devices. Once it is written that's it for what goes off on iPhone 16. There may be some additional tweaks up until iOS 18.6. The relatively small team working on iOS has it going out with tens of millions of units. Their work is not as connected to the process of production as the assembly line people attaching and assembling the F-150 truck. If some inessential feature is not done as a phone is being made, it will be punted to next release. This can't be done with an F-150 truck.
Software properly done is just much more profitable than non-software work. We can see this here. Yes, some of the latest boost is due to AI hype (which may or may not come to fruition in the near future), but these companies got to this position before all of that.
I was watching a speech by Gabe Newell talking about the (smaller) software industry of the 1990s, and the idea back then to outsource and try to save on salary costs. He said he and his partners went the other way and decided to look for the most expensive and best programmers they could find, and Valve has had great success with that. Over the past 2 1/2 years we've seen a lot of outsourcing to cheaper foreign labor, FAANG layoffs (including Microsoft's recent Xbox layoffs), and more recently attempts to lower costs by having software produced by less experienced vibe coders using "AI". I have seen myself at Fortune 100 companies, especially non-tech ones, that the lessons of the late 1960s NATO software engineering conferences, or the lessons learned by Fred Brooks while managing the OS/360 project in the 1960s haven't been learned. Software can be a very, very profitable enterprise, and it is sometimes done right, but companies are still often doing things in the same way they were attempting such projects in the early 1960s. Even attempts to fix things like agile and scrum get twisted around as window dressing to doing things in the old-fashioned corporate way.
For those worrying about concentration ... the market can get even more concentrated than it is now. In the 1880s, 80% of the market was related to railroads. That concentration always mean reverts, but it could take some time.
I feel like the situation in the 1880s was in a very, very different environment to today, though. How many public companies even were there 140 years ago...? (I actually tried to find this out just now with some quick searching, and wasn't able to find anything that looked relevant, so solid data would be helpful...)
Particularly in the latter part of the 20th century, the number of companies that choose to go public seems to have increased quite a bit—and, at the same time, there's been a huge wave of consolidation, meaning that even if there are fewer public companies than there would be without that, a higher share of the total economy is likely to be made up of public companies.
I've been rolling a 5 quantity long @ES since 2022. It hit stop once, made 30%, lost 10%, I waited for the next contract, entered again it just keeps printing. I intend to keep going for decades. Should have started earlier.
A lot of the concentration comes from companies just gobbling others, and therefore being more large conglomerates than anything else. Alphabet could easily be 5 separate stock tickers if they felt like it, and most would probably be big enough to be in the index. You could say the same thing of Meta and Microsoft. Splitting AWS from Amazon would also give us two very real, top of the line companies.
So the concentration might be a lot less than it seems, just because a lot of the AI play might be as low risk as, say, when Meta sank so much money into VR, or Amazon decided that smart speakers were the future. A lot of profits are spent if it all fails, but the engine of the company is still sitting there, being the same money fountain it's been for the last decade. It's just that they are, in practice, investing on what would be a new company with the proceeds, instead of doing stock buybacks, providing massive dividends, or reinvest in the existing verticals.
This is the expected outcome in capitalism. The general flow is money -> commodities -> greater money, and while it's not zero sum eventually that flow necessarily concentrates the money into entities that have the most money.
Once you become large enough, your "commodities" become other companies that are growing, enabling you to simply purchase growth and income directly with your capital.
In game design we call this a snowball effect or a "winners win more" system. It necessarily disadvantages everyone who is not at the top.
Unfortunately, there seems to be little appetite for limiting the capacity of capital to accumulate in only a few winners.
I am more and more convinced that we should set hard limits on size of companies and also individual wealth. I am ok with rewarding hard work but we have reached a point where wealthy individuals and large companies have accumulated too much power.
During the last election I was shocked how most people seem to think it’s ok for somebody like Musk to try to influence a senate election and to intimidate other candidates if they don’t fall in line. This should not be acceptable in a democracy.
Soon we will have the first trillionaire. That person will probably be more powerful than a lot of countries or US states.
Can’t wait for the stock market to crash beyond recovery and people shifting to buying up land and real estate, making living expenses skyrocket (again).
Mass homelessness, the 10th republican president in a row mobilizing the army, purging the homeless from the streets, people cheering.
People already speculate on land. There's no land value tax, so you buy cheap land, keep it empty (put a car dealership or something that's basically a parking lot on it, never develop it), then sell it to a developer years down the road
[+] [-] morellt|7 months ago|reply
I see it as an inflation of speculative worth of these companies. The value they are providing can in no way be proportional to the rate of growth of their stock. It is just a circulation of their own money being passed through each of those companies' services, and not anything of worth to the consumer.
[+] [-] froidpink|7 months ago|reply
[+] [-] nemomarx|7 months ago|reply
[+] [-] philipallstar|7 months ago|reply
Stock price is related to the predicted total value of the company from now until eternity, not the current value it's providing.
[+] [-] lumost|7 months ago|reply
[+] [-] RobKohr|7 months ago|reply
When reality comes to the table it isn't going to be pleasant.
[+] [-] mgh2|7 months ago|reply
The rest of the pack is feeding on the AI hype train, each supplying their services to pump up the story (analogy): Nvidia on chips (shovels), Microsoft and Amazon on cloud (gold storage), Meta and Google on ads (marketing).
[+] [-] rich_sasha|7 months ago|reply
If the former then duh! Top 10 stocks are top 10 because they were going up! You will see this for any index.
The latter would make sense but given the laconicity of the post, it's pointless to speculate.
[+] [-] blitzar|7 months ago|reply
> forward net income estimates
Its a backward looking chart, use actual profits or eps results (although that can be manipulated through accounting). If the point is that income expectations are low - then are those expectations bourne out in the earnings?
> 3 years
Why only show the chart of the last 3 years? Has it always been like this - text says this wasnt the pattern in the 1960's (and 70's btw) - but there is a 50 year window between then and now that isnt discussed.
this is basically just a normalised pe ratio for top 10 and rest of the index - use that instead.
[+] [-] aranw|7 months ago|reply
[+] [-] matltc|7 months ago|reply
I also felt overexposed to tech and about 80% of my stock portfolio was US total market or SP (basically the same)
I have been dollar-cost averaging slightly out of those positions and into other small-/mid-cap funds. I have decreased my stock allocation as well and moving toward bonds and CDs, which are returning around 4.5-5% guaranteed.
Interested to hear what others who speculate that SP overdue for correction might be doing
[+] [-] mhb|7 months ago|reply
[+] [-] mhb|7 months ago|reply
https://youtu.be/VZMFp-mEWoM?si=ebdSU-W59KX5G0Qu
[+] [-] nasmorn|7 months ago|reply
[+] [-] hazmazlaz|7 months ago|reply
[+] [-] bspammer|7 months ago|reply
[+] [-] conditionnumber|7 months ago|reply
Trading costs. A cap-weighted portfolio manages itself. Square root cap weighting is going to trade a lot, and that's expensive.
[+] [-] randomtoast|7 months ago|reply
There are ETFs that consider fundamentals, such as book value, cash flow, and sales. In these fundamental-weighted ETFs, AI companies that burn large amounts of cash are rated much lower compared to their weighting in market cap-based ETFs.
[+] [-] onlyrealcuzzo|7 months ago|reply
If Tesla has a 200 P/E and MSFT has a 40 P/E, and the s&p has an average of 20, you'd have 1/10th the Tesla and 1/2 the MSFT shares as a traditional ETF.
[+] [-] jbjbjbjb|7 months ago|reply
[+] [-] Ologn|7 months ago|reply
Nvidia, Microsoft, Apple, Alphabet/Google, Amazon, Meta/Facebook, Broadcom, Tesla, Berkshire Hathaway, and Walmart.
A commonality to most of them (and to a lesser extent all of them) is they write software.
If a company not on the list like Ford has an F-150 truck come off the assembly line, some of that $40,000 cost is in the capital expenditure for the plant, any automation it has, the software in the car and so on. But Ford has to pay for the aluminum, steel and glass for each truck. It has to pay for thousands of workers on the assembly line to attach and assemble parts for each truck.
Meanwhile, at Apple a team writes iOS 18, mostly based on iOS 17, and it ships with the devices. Once it is written that's it for what goes off on iPhone 16. There may be some additional tweaks up until iOS 18.6. The relatively small team working on iOS has it going out with tens of millions of units. Their work is not as connected to the process of production as the assembly line people attaching and assembling the F-150 truck. If some inessential feature is not done as a phone is being made, it will be punted to next release. This can't be done with an F-150 truck.
Software properly done is just much more profitable than non-software work. We can see this here. Yes, some of the latest boost is due to AI hype (which may or may not come to fruition in the near future), but these companies got to this position before all of that.
I was watching a speech by Gabe Newell talking about the (smaller) software industry of the 1990s, and the idea back then to outsource and try to save on salary costs. He said he and his partners went the other way and decided to look for the most expensive and best programmers they could find, and Valve has had great success with that. Over the past 2 1/2 years we've seen a lot of outsourcing to cheaper foreign labor, FAANG layoffs (including Microsoft's recent Xbox layoffs), and more recently attempts to lower costs by having software produced by less experienced vibe coders using "AI". I have seen myself at Fortune 100 companies, especially non-tech ones, that the lessons of the late 1960s NATO software engineering conferences, or the lessons learned by Fred Brooks while managing the OS/360 project in the 1960s haven't been learned. Software can be a very, very profitable enterprise, and it is sometimes done right, but companies are still often doing things in the same way they were attempting such projects in the early 1960s. Even attempts to fix things like agile and scrum get twisted around as window dressing to doing things in the old-fashioned corporate way.
[+] [-] TylerJewell|7 months ago|reply
[+] [-] danaris|7 months ago|reply
Particularly in the latter part of the 20th century, the number of companies that choose to go public seems to have increased quite a bit—and, at the same time, there's been a huge wave of consolidation, meaning that even if there are fewer public companies than there would be without that, a higher share of the total economy is likely to be made up of public companies.
[+] [-] nurettin|7 months ago|reply
[+] [-] churchill|7 months ago|reply
[+] [-] jzig|7 months ago|reply
[+] [-] Taikhoom10|7 months ago|reply
[+] [-] hibikir|7 months ago|reply
So the concentration might be a lot less than it seems, just because a lot of the AI play might be as low risk as, say, when Meta sank so much money into VR, or Amazon decided that smart speakers were the future. A lot of profits are spent if it all fails, but the engine of the company is still sitting there, being the same money fountain it's been for the last decade. It's just that they are, in practice, investing on what would be a new company with the proceeds, instead of doing stock buybacks, providing massive dividends, or reinvest in the existing verticals.
[+] [-] poisonwomb|7 months ago|reply
[+] [-] kakali|7 months ago|reply
[+] [-] unknown|7 months ago|reply
[deleted]
[+] [-] shazbotter|7 months ago|reply
Once you become large enough, your "commodities" become other companies that are growing, enabling you to simply purchase growth and income directly with your capital.
In game design we call this a snowball effect or a "winners win more" system. It necessarily disadvantages everyone who is not at the top.
Unfortunately, there seems to be little appetite for limiting the capacity of capital to accumulate in only a few winners.
[+] [-] vjvjvjvjghv|7 months ago|reply
During the last election I was shocked how most people seem to think it’s ok for somebody like Musk to try to influence a senate election and to intimidate other candidates if they don’t fall in line. This should not be acceptable in a democracy.
Soon we will have the first trillionaire. That person will probably be more powerful than a lot of countries or US states.
[+] [-] pydry|7 months ago|reply
Despite many peoples' attempts to say otherwise, this is pretty much the core point of capitalism.
It emerged out of mercantilism which was applying the same "winner takes all" aim, except to states rather than individuals.
[+] [-] AbstractH24|7 months ago|reply
[+] [-] lardbgard|7 months ago|reply
[+] [-] kubb|7 months ago|reply
Mass homelessness, the 10th republican president in a row mobilizing the army, purging the homeless from the streets, people cheering.
It’s gonna be a mood.
[+] [-] nerdponx|7 months ago|reply
Already here
> the 10th republican president in a row mobilizing the army, purging the homeless from the streets, people cheering.
This is literally happening right now in Washington DC (it's the National Guard but still).
[+] [-] 01HNNWZ0MV43FF|7 months ago|reply
[+] [-] rvz|7 months ago|reply