Big tech valuations. Are they cheap? Here is what the PE looks like if earnings revert back to prepandemic

looking at TTM EPS prior to covid lockdowns and helicopter money, assuming earnings compression come into effect

msft at current share price of $225 would have 37.5 PE with EPS of $6 per share

googl at current share price of $97 would have 38.8 PE with EPS of $2.5 per share

aapl at current share price of $139 would have 43.4 PE with EPS of $3.2 per share

meta at current share price of $128.5 would have a 17.6 PE with EPS of $7.3 per share

people tunnel vision on PE and stock price, often forgetting the second part of the equation which is the E is for Earnings

Big tech valuations. Are they cheap? Here is what the PE looks like if earnings revert back to prepandemic  looking at TTM EPS prior to covid lockdowns and helicopter money, assuming earnings compression come into effect  msft at current share price of $225 would have 37.5 PE with EPS of $6 per share  googl at current share price of $97 would have 38.8 PE with EPS of $2.5 per share  aapl at current share price of $139 would have 43.4 PE with EPS of $3.2 per share  meta at current share price of $128.5 would have a 17.6 PE with EPS of $7.3 per share  people tunnel vision on PE and stock price, often forgetting the second part of the equation which is the E is for Earnings

Sam Mendoza

Because the size of a company’s need for access to cloud architecture is based on their employee size and avg users resource needs. While the needs per user will most likely stay near static I see a major slowing to its growth and many parts of tech are still priced for this growth. Add in layoffs equaling less users and we will see major revisions to forward PE.

Thats just one example. Plenty of headwinds out there.

My question is why would massive cloud companies makes / be worthless money after 3 years of everything being transitioned to the cloud in Google and Microsofts case?

Gadgets

Food Porn

Bio hacking

Science is awesome 🧬🦾🚀🤯

Hip-Hop

Nate

Because the size of a company’s need for access to cloud architecture is based on their employee size and avg users resource needs. While the needs per user will most likely stay near static I see a major slowing to its growth and many parts of tech are still priced for this growth. Add in layoffs equaling less users and we will see major revisions to forward PE.  Thats just one example. Plenty of headwinds out there.

Cloud customers are cutting expenses. They use less expensive options wherever possible, rent less powerful VMs, use slower storage, and otherwise optimize costs on their end.

On top of that, if economic activity goes down, clients naturally use less cloud services. Walmart does not need as much capacity as during peak pandemic, if people are buying less. They scale down until demand returns and pay less.

Data centers are not that different from factories. If there are no orders, you get no money, but still need to spend to maintain the facilities. And maintenance became more expensive due to inflation, higher energy costs and supply shortages, cutting into profits.

Sales are global and strengthening dollar cuts into profits too, because contracts are typically set in local currencies over a long period of time. European customers pay the same amount in euros as before, but revenue in dollars is down 20% over a single year.

Top cloud providers will still be highly profitable, but profits will probably go down across the board and we might even see seemingly never-ending growth finally stalling.

Btw, Google never made any money on its cloud. It was a continuous loss due to high capital investments, late entry, and small market share. And now it's going to get even worse for them. Google has money to weather this out, but smaller and niche players are in trouble.

Cloud customers are cutting expenses. They use less expensive options wherever possible, rent less powerful VMs, use slower storage, and otherwise optimize costs on their end.  On top of that, if economic activity goes down, clients naturally use less cloud services. Walmart does not need as much capacity as during peak pandemic, if people are buying less. They scale down until demand returns and pay less.  Data centers are not that different from factories. If there are no orders, you get no money, but still need to spend to maintain the facilities. And maintenance became more expensive due to inflation, higher energy costs and supply shortages, cutting into profits.  Sales are global and strengthening dollar cuts into profits too, because contracts are typically set in local currencies over a long period of time. European customers pay the same amount in euros as before, but revenue in dollars is down 20% over a single year.  Top cloud providers will still be highly profitable, but profits will probably go down across the board and we might even see seemingly never-ending growth finally stalling.  Btw, Google never made any money on its cloud. It was a continuous loss due to high capital investments, late entry, and small market share. And now it's going to get even worse for them. Google has money to weather this out, but smaller and niche players are in trouble.

Jerome Cody

Because doom and gloom.

The last three years of earnings growth with be lost and then it will be basically flat forever. The pandemic didn't accelerate trends it introduced temporary bubbles that are now bursting.

Is MSFT is hugely over, not underpriced?

Because doom and gloom.  The last three years of earnings growth with be lost and then it will be basically flat forever. The pandemic didn't accelerate trends it introduced temporary bubbles that are now bursting.  Is MSFT is hugely over, not underpriced?

It could be simply that forced sellers have nothing else to sell - all the other growth stocks that people love to buy are already down 60-70%

Who’s a forced seller? How about:
- hedge funds going out of business based on poor performance this year
- retail investors needing to meet variable rate mortgage payments 
- England pension funds being forced to lower their risk profile: https://www.nasdaq.com/articles/british-pension-funds-step-up-fire-sales-as-need-for-cash-soars-0

It could be simply that forced sellers have nothing else to sell - all the other growth stocks that people love to buy are already down 60-70%  Who’s a forced seller? How about: - hedge funds going out of business based on poor performance this year - retail investors needing to meet variable rate mortgage payments  - England pension funds being forced to lower their risk profile: https://www.nasdaq.com/articles/british-pension-funds-step-up-fire-sales-as-need-for-cash-soars-0

Sam Mendoza

A group of likeminded people in The Most Important Thing are talking about this.