High-multiple tech faces valuation digestion headwind
The guest argued that paying extreme price-to-sales multiples for high-growth tech names forces investors to wait years for stocks to grow into their valuations, even if business performance remains strong.
The argument
Using Palantir as an example, the guest noted that despite 72% sales growth, the stock remained flat because it had to digest its previous 90x price-to-sales multiple. A similar risk was highlighted for highly anticipated speculative issuances like SpaceX.
The thesis, stress-tested
✓ What validates it
- ✓Underperformance of high price-to-sales stocks relative to their fundamental growth
- ✓A contraction in average software sector multiples
▸ Risks discussed
- ▸Accelerating revenue growth that outpaces the high multiple
- ▸Market multiple expansion continuing due to momentum chasing
Hear it yourself
"So the question is, how much can this speculative portion of markets continue? So we got some froth. You've identified it. Technical's a stretch. People have talked about that endless endlessly over the last two months or so. Is that enough reason to sit this out? No. It's not because the earnings picture is so very strong, but I think what we have to appreciate with the earning story is two really big things. The first one is the upside in the hyperscaler capex. This time last year, we were expecting hyperscaler capex to be up 10%. That number today is 80%."
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