Do you remember the good ol' days of the Dot-Com Bubble? And the Dot-Com-Crash that followed?
Back then, Sun Microsystems was one of the darlings of Silicon Valley. The company is credited with inventing Java, and many of the Internet's servers at the time ran on Sun hardware. Investors jumped in the bandwagon, which pumped the share price. People were buying the shares because they expected the share price to keep going up. This can look good â for a while.
A problem with speculative stocks is that the price ceases to bear a healthy relation to the company's potential future earnings. There's no way for the company to deliver enough profit to make the price you paid worth it. The fundamentals don't stack-up, and a crash is inevitable. With the benefit of hindsight, Scott McNealy, CEO of Sun Microsystems, was critical of speculative trading when the companyâs stock price reached a whopping 10 times revenues.
You may think that was all just "tulip mania".
You may think sharemarket investors have learned from the dot-com bubble era.
You may think governments and banks would have changed the rules to prevent things getting so out-of-whack again.
You may think the "snake-oil salesman" tactics by Silicon Valley Tech-Bros couldn't create a disaster like that again these days...
Tesla's share price is being pumped by a fast-talking madman. Tesla's Price-to-Sales Ratio is currently about 9, and looks to be heading up to over 10 again, where it was from mid June to mid-July.
Nvidia's share price is being pumped by AI hype. Nvidia's Price-to-Sales Ratio is currently about 35, and looks to be heading up to over 40 again, where it was from mid June to mid-July.
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