So says Rob Arnott, renowned for his warnings on the dangers of bloated megacaps — and the designer of passive products for muting their supposed threat. Up 232% in 2023, Nvidia may be riding a revolution in computer science, but the stock is “a textbook story of a Big Market Delusion,” wrote the founder of Research Affiliates LLC.
Strong opinions about alleged bubbles are nothing new for Arnott, an architect of the so-called smart-beta system of rewiring traditional indexes in ways that limit the influence of giant companies. He predicted in December 2020 that Tesla Inc. would be a drag on the S&P 500 after it became the biggest company ever added to the benchmark. The stock and the index are both up about 20% since he made that case.
“You don’t want to be in a situation at this point where you’re betting against continued US innovation and the impacts that can have on the economy,” said Steve Chiavarone, senior portfolio manager and head of multi-asset solutions at Federated Hermes. “These companies, they’ve got more cash than God. So there’s a resiliency there, there’s balance sheets there that are altogether different than what you had a couple of generations ago.
The tech behemoths that have powered the Nasdaq 100 rally have been standouts for years as they became beneficiaries of scalable business models that allowed them to generate strong earnings and cash-heavy balance sheets. They look “fantastic” when viewed over specific time periods, including since 2014, when they really started to take off. “If you cherry pick right now, you can’t beat the Qs.”
“The risk that we’re wrong, that Nvidia’s off to incredible things and will go up another 10-fold in the coming 10 years is possible,” he said. “I would say it’s not plausible, and therefore I’m comfortable calling it a bubble.”Palantir Technologies Inc. fell 25% in August, its biggest monthly drop in a year, as analysts continued to turn bearish on the stock.
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