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Ask HN: Are we in tech-stock bubble?
How would you justify current TSLA stock price?
- tonystubblebine 6y agoTSLA? No idea. But I think there's often some hidden game going on with tech companies that go well beyond selling more sugar water and expanding overseas to places that haven't seen sugar water before. Amazon is the best at this... using one business to launch a second. So what I'd look for with TSLA is not whether cars can ever justify this price, but whether there is an adjacent business that is actually bigger than cars. Is there? I have no idea.
- cwwc 6y agoThere is a secret sauce: pairing a company (Amazon.com) with heavy net operating losses (NoLs) with a very profitable company (AWS). The result? Amazon pays zero taxes and can continually expand. The NoLs offset the profits, and every time Amazon has a division that becomes profitable they offset it by entering a promising but loss-inducing new sector. Then, when that division becomes profitable - rinse and repeat. This is Bezos’ genius.
- thewarrior 6y agoAre taxes such a serious constraint on company growth when funding is so easily available ?
- cwwc 6y agoHm. Not sure, that’s an excellent point. It may not be a constraint, but I think it is a massive incentive.
- voodootrucker 6y ago> This is Bezos’ genius. His genius is gaming a readily game-able tax system for personal gain and public loss? I do agree it's what he's good at, but I disagree about it being "genius" and question whether it's worthy of praise.
- ykevinator 6y agoMorality is not real, he is a genius at this.
- cwwc 6y agoConcurred.
- jungturk 6y agoARK put out a prospectus that details where they feel Tesla's revenue may come from. Scroll down a page or two and you'll see the tables they're using. https://ark-invest.com/articles/analyst-research/tesla-price-target/ https://ark-invest.com/articles/analyst-research/tesla-price...
- hindsightbias 6y agoUnlike the dot-com era, Tesla makes real things. The valuation is unimportant as long as there isn’t something else for cash rich people to put their money into. Same for BTC or beach property.
- cma 6y ago> Tesla makes real things. Well they redefined what full self driving means, that's for sure.
- Negitivefrags 6y agoAmazon did real things during the dot-com era and that didn't stop it's stock crashing 90%. Tesla is doing real things and is a great company that I'm sure will be profitable and do well in the future. Doesn't mean I don't think that it's stock price is still inflated by 10x right now.
- cwwc 6y agoTSLA? Not justifiable from a pure numbers standpoint. But - other tech stocks? Arguably justifiable. Since the risk free rate (treasuries) has cratered, this has altered the DCF calculation that analysts use to value a company (the outcome is essentially this: the company is worth more, because this risk free rate is used in discounting the PV vs FV of the company’s cash flows). Thus, it makes sense to have companies worth more (compared to historical price-to- earnings comparisons). Then on top of this, there is a somewhat deflationary force of tech companies providing more efficient means and processes to things - which further perpetuates the cycle of these companies being worth more (their inputs cost less and are less labile, and their outputs are greater than say, a mining or oil company)
- CyanLite4 6y agoTSLA is easily justifiable. Their entry into other markets, like home-installed batteries (PowerWall), solar roofs, HVAC, home automation, trucking, robo-taxis, etc. all make it very attractive. Even just selling their batteries at retail stores like an Energizer or Duracell would add a few billion to their revenue stream. They’re a solid 5 years ahead of competitors in terms of battery and self-driving capabilities. Besides, even if none of those bets pay off, they still sell 3-5 million cars a year at over $50k per unit, and waiting lists for more buyers and don’t pay a dime to a dealer network. Once their fully autonomous self-driving software is released, I see them at a $1 trillion valuation (roughly $1000/share) easily.
- cwwc 6y agoCurious, do you have a rough timeframe on when you think this will play out? Just roughly speaking - I don’t have an angle, just haven’t thought of it in this manner before.
- throw_this_one 6y agoHow is self-driving software that useful at all for a consumer driving a car? Nobody is gonna trust the car to drive while they're napping or working on their laptop lol.
- thewarrior 6y ago
- seibelj 6y agoEvery single person has no simple way to save money anymore. Savings accounts, CDs, and money markets - even high-yield online ones like Ally and Goldman Sachs - pay zero interest or close to it. Simultaneously the government has printed an absolutely incredible amount of money this year that has almost exclusively gone to the wealthy. This is because the fed is buying treasuries / corporate junk bonds and backstopping our entire economy while the actual economy has shrank maybe 10%. A tiny amount of the printed money is airdropped to citizens with direct checks or extended unemployment but this is a tiny amount that is primarily to buy off the commoners so they don’t complain about the enormous wealth transfer happening right now. What this means is scarce financial assets are going to go up, and up, and up. Every person who doesn’t want to lose money needs to become a risk manager and start investing because there is no other option.
- ConcreteGidget 6y agoIts pretty crazy how no one is talking about how only 18% of the stimulus bill is going to individuals. I'm by no means rich but I made 80k passively this year so I don't know which side of the wealth transfer I'm on.
- cwwc 6y agoIt’s odd how it seems the US is capitalist on the way up, and socialist on the way down (for big co’s and industries - airlines, banks, ect). Good for equity investors. But - Individuals? We’re on our own. A bit crony, in my mind.
- seibelj 6y agoTrue capitalists do not applaud the crony capitalism common throughout the entire world. Japan’s government now owns sizable percentages or even outright majorities of all major corporations. The endless appetite for debt-fueled stimulus has led to crazy malinvestment that will be an extremely difficult pill to swallow when the bill finally comes due. Why even tax us anymore? If it’s so easy to print new money just sum all the money necessary for the budget and print it fresh. Basically the same thing at this point.
- deleted 6y ago[deleted]
- maxharris 6y agoTSLA? Entirely justified. I think we're headed to $4400/share by 2024. (See Cathie Wood's "golden goose" bull case for details.) I laid out my reasoning for getting in back in May 2020. I raised my position to 86% a month after writing this: https://news.ycombinator.com/item?id=22970810 https://news.ycombinator.com/item?id=22970810
- rainyMammoth 6y agoAt this point, pretending that TSLA has anything to do with the company Tesla is grotesque. I applause the length to which you go to justify yourself. TSLA is a meme stock that operates on a narrative that "TSLA always goes up". It's pure speculation and that bubble is going to pop very badly. And it might take the whole economy with it now that it is in the SP500 with a ridiculous valuation.
- michaeljohansen 6y agoS&P500 has a total market cap of $31T. Tesla's current piece of that index is ~2%. A bubble pop would be unlikely to "take the whole economy with it" (thankfully).
- rainyMammoth 6y agoWhen Tesla pops, it will potentially lose 80 or 90% of its values over a couple days/weeks. Even though that's only 2% of the SP500, it will trigger a panic sell for related companies in the same industry, and it might eventually become a macro indicator.
- maxharris 6y agoI'm sorry you missed out on one of the best investments of the decade, but there is a lot of room left for this to run. Tesla's coming FSD and robotaxis still haven't been priced in. https://www.youtube.com/watch?v=hx7BXih7zx8 https://www.youtube.com/watch?v=hx7BXih7zx8
- 6y ago
- kyrieeschaton 6y agoThe Fed has flooded the financial sector with cash. That cash has to go somewhere. Every security with a CUSIP and a price tag is getting inflated as a result.
- dahx4Eev 6y agoWe're probably in a cryptocurrency bubble rather than a tech bubble. Blockchain.com and Crypto.com look like Pets.com.
- mancerayder 6y agoNo one ever answers a question like that to a satisfying degree. I made a bunch of money speculating on the swings of stocks. Not with options, just patience, and it enabled me to make wild returns. For example, I bought and sold Virgin Galactic 3 times over the past 13 or 14 months, which tripled my initial capital. I did similar but with a risky few pharma stocks. PLTR tripled since IPO (and unlike AirBNB it wasn't rigged to benefit banks-and-friends) so that's another 200% return. While many people dump their capital into index funds, I keep most of my money in cash and speculate wildly with a fraction of it, and my returns over the past 5 years exceed what many large funds do. I also learn about industries and follow news that I wouldn't otherwise. Stock market index funds terrify me because I want to use the cash in the coming years for property. I don't know, but none of this seems healthy and normal. I've been following the financial press for a long time almost daily, and I'm pretty confident no one's proclamations of the bottom or top can be trusted in advance. We'll know in months or years whether we're in a top.
- thewarrior 6y agoWhat portions of your returns are due to luck in your view ? Also you said you entered and exited virgin 13 times. How do you time your exits. Are you willing to reveal your strategies or algorithms?
- Gustomaximus 6y ago> For example, I bought and sold Virgin Galactic 3 times over the past 13 or 14 months
- hanoz 6y ago> For example, I bought and sold Virgin Galactic 3 times over the past 13 or 14 months, which tripled my initial capital You would have more than tripled your capital if you'd bought 14 months ago and held until today.
- mancerayder 6y agoThat's patently incorrect, actually. Today the stock is 24.39. On 30/10/2019 I purchased a quantity at $12.40. Let's continue. I sold it all in 2/2020 in 3 separate transactions between $32-$37. Later, I repurchased it at $22, and again two more times as it dropped to the 18's. I then sold everything again at $28... about 10 days ago. So it was two sets of purchases and sales, not three. So no, buying and holding would have not maximized my gains. And this is true for many stocks. By the way, this is in an IRA account so there is no need to think about short v. long-term cap gain taxes here. The behavior in my main brokerage accounts accounts a bit more for the potential tax implications. However, if it's a volatile stock and I think went up or down in an extreme way that I think isn't justified, I'll jump in.
- hn_throwaway_99 6y agoAnother commenter mentioned this, but it's important to understand the net present value calculation, which is: NPV = Rt / (1 + i)^t Rt is the incoming cash flow at time t, and i is the discount rate. This is the "theoretical" way that businesses should be valued: estimate their future cash flows, then discount them back to the present to take the time value of money into account (of course, in the real world, there is a lot more that goes into the price of stocks). The issue is that as the discount rate approaches 0, the net present value then equals the same as ALL future positive cash flows. For large, perpetually operating businesses, this can then turn into something between "a lot" and "infinity". Again, there are lots of other things that go into actual stock prices, but our economic system really is in new territory when the discount rate approaches 0 (or heck, goes negative!)
- xapata 6y agoFor those of you following at home, the discount rate is correlated with the federal interest rate.
- progit 6y agoThis is only true for profitable enterprises. The rest is same as ponzi scheme.
- throw_this_one 6y agoWhat's the real ELI5 reason for this though? Why does a drop in the fed rates from 1% to .2% matter much more than a drop from 4% to 2%?
- ajmadesc 6y agoExponent?
- randomopining 6y agoYeah but besides the math part of it... what’s the actual explanation? Besides “that’s how it impacts the formula!”
- bfieidhbrjr 6y agoResponding to the question, and the comments: It could be worse. Much worse. It could be the great depression, caused by massive shrinking in the money supply. Nobody likes growth in the money supply (well, ok, debtors do). But, it's better than a shrink. Or as Ray Dalio sorta says, a beautiful deleveraging. Yes it's a bubble, defined by everyone saying it's not a bubble. Is TSLA justified - no and yes. Purely monetarily, no. But in relation to all it's competitors yes. They're all FUBAR. Most of them don't have a clue about either EVs or self-driving. They are horse carriage companies in the age of the Ford Model T. Relative to their competitors, yes, TSLA should be ahead as a measure of future growth, or future ownership of the transportation sector. There is little doubt how clueless their competitors currently are. But it's still arguable TSLA is ahead of the curve a little. Will TSLA come down? Different question. Now they're in the S&P 500 this isn't simple. Probably not. If you transpose or invert the question - who will challenge TSLA? Crickets. Silence. That's why TSLA is so highly valued. There is nobody even close. LOL NKLA. Will tech stocks come down? Yes, but there's many ways to think of it. Will covid end? Yes, this too shall pass. tech stocks will come down but relative to what? The dollar? Maybe. But more likely everyone else will catch up a little. Stepping back - let's ask a better quesiton. Who's long tech stocks? What would you bet tech stocks go up (a dollar? 10 dollars? 100 dollars..?). These questions are better asked as bets or about current positions.
- rootusrootus 6y ago> They are horse carriage companies in the age of the Ford Model T. I disagree. If you discount self-driving (and I do), then there are clearly other manufacturers who know perfectly well how to produce an EV. I own both a Tesla and a Bolt, and neither is a clear winner over the other. They each have ups & downs, but in any case GM produced a perfectly good EV. And Ford's Mach-E appears to be an improvement on Tesla's Model Y. The game is on, and the big boys seem to know the rules.
- bfieidhbrjr 6y agoI've owned multiple Tesla and LEAFs. I've test driven a Bolt. A Bolt to a Tesla like Salieri to Mozart. Where to even begin? Thin seats. Smaller car. No charging network. No self-driving. No remote software updates... It's a long list. Does GM even know how to make a car these days? TSLA has massive growth problems. I've had my own issues with my Tesla cars. But how could we even talk about Bolt and Tesla in the same paragraph? We should be talking about BMW. My past BMW service experiences were far better than Tesla. That's comparable to my Teslas. Who cares about GM? If, one day, the Mach-E ships, and anyone buys it, and it has anything near AutoPilot then maybe we can talk about it. But right now the Mach-E is about as useful as a NKLA truck. With no charging network. Or AutoPilot. So it's basically a bigger LEAF.
- Nextgrid 6y agoNot sure about Tesla, but for the tech industry in general a lot of companies/startups have been propped up by other startups having near-infinite VC cash to spend on them so the profit made by these companies wasn't actually correlated with the value they provide. The market will have a big wake-up call when the VC money dries up and these companies will be in serious trouble. I think advertising and marketing is a good example of this. The amount of advertising a typical person is exposed to has increased by orders of magnitude but the amount of disposable money people have hasn’t followed. Given the primary objective of advertising is to drive a purchase (either directly or indirectly through brand awareness), an adjustment is bound to happen. Currently a lot of advertising & marketing is propped up by VC-funded companies who burn unreasonable amounts of money on customer acquisition in an attempt to monopolise their market, but these attempts are petering out which in turn means the advertising companies’ revenue would diminish and get closer to the true value of their services. We’re already seeing this on major platforms where they cram more and more ads in, in an attempt to maintain their revenue despite the declining value of their ad slots.
- WheelsAtLarge 6y agoI think we are at an inflection point. We are about to see an increase in productivity and innovation due to the technologies (AKA tools) that have been created in the last few decades. That has sparked the buying euphoria that has driven many stocks to extra ordinary levels. Is it a bubble? Maybe, we really won't know until after the fact. I believe that if it is, it's only the start. We will be seeing higher highs for at least a few more years. The euphoria has just started. I believe it so much that I think we will see the 1st Trillionaire with in the next 15 years. These innovations plus our positive progressive social views will improve the standard of living for many and that in effect will help many others. Good days are in our future.
- nknealk 6y agoThere are a variety of comments saying that discount rates are going to 0 because of fed actions which therefore justifies high asset prices. Another version of this story is “the fed printed cash and it has to go somewhere”. While it is true that discount rates are being suppressed by fed action, risk free rates are only one portion of what flows into the discount rate of a DCF. Market risk premium is another component that seems to be completely ignored this HN thread. The google search term to get your feet wet is “CAPM”. I personally think that risk free rates being 0 is not sufficient to justify some of the valuations we’re seeing in the technology sector.
- cyb_ 6y agoI came across an article recently which talked about how current accounting standards don't portray an accurate picture of many tech companies due to "intangible assets". I wonder if or how much this shows up in the current feeling of many tech stocks bring overpriced? https://tanay.substack.com/p/the-rise-of-intangibles-and-the-demise https://tanay.substack.com/p/the-rise-of-intangibles-and-the... https://news.ycombinator.com/item?id=25556726 https://news.ycombinator.com/item?id=25556726