valuation

Few stocks are as directly exposed to artificial intelligence as CoreWeave (CRWV 0.72%). The AI cloud infrastructure company reinvented itself, transitioning from a crypto mining company by repurposing its GPUs to provide AI computing power to customers like Microsoft, Nvidia, and OpenAI.

With the AI boom in full swing, that business model has led to jaw-dropping growth. In its second quarter, its revenue jumped 206% to $1.21 billion, showing how fast demand for its services is ramping up.

Now, CoreWeave just got another shot in the arm as the stock jumped 12% on Tuesday after announcing another blockbuster deal, this time with Meta Platforms (META 1.35%).

Image source: Getty Images.

What’s happening with CoreWeave and Meta?

Meta is committing to spend up to $14.2 billion through 2032 on cloud computing capacity from CoreWeave, with an option to expand its commitment.

The deal comes at a time when Meta has been ramping up its spending on AI, seeing it as a must-win for its future. In June, Meta acquired a 49% stake in Scale AI, a data-labeling start-up, and poached its CEO, Alexandr Wang, to run its new AI lab.

On the same day that the CoreWeave news came out, Meta also announced that it’s buying the chip start-up Rivos, which designs chips based on RISC-V architecture, an alternative to those used by leading CPU architecture designers Arm, Intel, and AMD. Rivos is also expected to help Meta build out full-stack AI systems.

For CoreWeave, the deal builds on the earlier momentum it earned when it signed an expanded $6.5 billion agreement with OpenAI in September, bringing its total contract with OpenAI to $22.4 billion.

The drumbeat of positive news for AI includes rival Nebius’s $17 billion deal with Microsoft, Oracle’s huge cloud computing forecast, and CoreWeave’s own wins, including OpenAI, Meta, and a $6.3 billion deal with Nvidia, in which it will buy any of CoreWeave’s unused capacity, effectively backstopping the company’s growth.

Those news items, and improving sentiment around CoreWeave, sparked a recovery in the stock last month. After falling by more than 50% from its peak in June, CoreWeave jumped more than 50% off its lows early in September.

Is CoreWeave overvalued?

CoreWeave is a challenging stock to value. The company is delivering phenomenal top-line growth, but it’s also reporting huge losses. The company’s business model is risky. It’s borrowing billions of dollars to buy Nvidia GPUs and build out the infrastructure to provide next-generation AI computing.

That high-interest debt has also led CoreWeave to pay significant interest expense, set to be above $1 billion this year, essentially preventing CoreWeave from turning a profit.

For most stocks, to determine an appropriate valuation, you just look at the numbers. However, CoreWeave is in a class of its own. Given its growth rate, in which revenue is still tripling, the upside potential for the stock is tremendous, and conventional cloud computing businesses like Amazon Web Services and Microsoft Azure have shown how profitable cloud computing can be at scale.

Rather than parsing the numbers for CoreWeave to determine whether the stock is overvalued, investors are better off considering the future of the AI boom. If the massive capex buildout continues, including on CoreWeave’s infrastructure, the stock is a good bet to be a winner. At a market cap of $66 billion, the stock still has room to move higher.

However, if the AI boom turns into a bubble and spending suddenly slows, CoreWeave is likely to plunge. While it’s locked in multi-billion-dollar deals with the likes of Meta, the company will need more of those to turn profitable and justify its current valuation.

Either way, expect the volatility in the stock to continue.

At the time of this writing, the S&P 500 (^GSPC 0.34%) is less than 1% off its all-time high and up 73% since the start of 2023. Artificial intelligence (AI) and investor appetite for risk have contributed to the torrid gains, making the market relatively expensive.

You may have seen headlines saying that the S&P 500 is overvalued compared to its historical averages. Or that red-hot growth stocks have run up too fast. But that doesn’t tell the full story.

Three simple valuation metrics — earnings, trailing price-to-earnings ratio, and forward price-to-earnings ratio — explain what’s going on with the market’s valuation. Here’s why they matter, why the S&P 500 isn’t as expensive as it seems, and what that means for your investment portfolio.

Image source: Getty Images.

This growth-driven market commands a premium price

The S&P 500 is an index featuring the 500 largest companies in the U.S. by market cap. The more valuable a company, the greater its influence on the index through its stock price. So a $4.5 trillion-plus company like Nvidia has more than 10 times the influence as a $400 billion company like Home Depot. But that also means Nvidia has 10 times the impact on S&P 500 earnings.

Just like individual companies, the S&P 500 has an earnings per share (EPS) metric. This is just an average of the earnings of each company adjusted for weight in the index. So again, Nvidia’s earnings will have 10-plus times the impact as Home Depot’s.

Ten particularly influential growth stocks, known as the “Ten Titans,” now make up 39% of the S&P 500. But many of these companies are being valued for where they will be several years from now rather than where they are today. Meaning that their price-to-earnings ratios (P/E) and forward P/E ratios are elevated, thereby bloating the valuation of the S&P 500.

According to data from FactSet, the forward P/E of the S&P 500 is 22.5, compared to a five-year average of 19.9 and a 10-year average of 18.6. Based on forward earnings projections for the next year, which tend to favor growth stocks, the S&P 500 is 13.1% pricier than its five-year average and 21% more expensive than its 10-year average. Even if companies live up to expectations, their stock prices may not go up in the near term simply because these results may already be priced in.

Valuation matters less for investors with a long-term time horizon. If the S&P 500 goes nowhere for a year or two but earnings keep growing, the narrative will flip, and the index will look cheap. So the five- or 10-year return could still be solid, reinforcing the importance of approaching the stock market with a long-term time horizon rather than trying to make a quick buck.

S&P 500 gains can be misleading

Using P/E ratios and forward P/E ratios compared to historical averages only tells part of the story. Those two metrics alone may suggest that all stocks are expensive, but that’s not the case.

Data by YCharts.

As mentioned before, the S&P 500 is up 73% since the start of 2023, but the S&P 500 Equal Weight Index has returned just 33.3% — a nearly 40 percentage point difference. Instead of weighting by market cap, the S&P 500 equal-weight gives all S&P 500 components the same influence on the index. Nvidia moves the S&P 500 equal-weight index the same as any other company does.

When the S&P 500 outperforms its 500 equal-weighted index, it means that megacap companies are doing better than companies with smaller market caps. When the equal-weighted index outperforms, it means the megacap names are dragging down the index.

Since the start of 2023, megacap companies have drastically outperformed smaller S&P 500 names. Over the last decade, the S&P 500 rose 253.1% while the equal-weight jumped 161.6%. It would have been especially difficult for an individual investor to keep pace or outperform the S&P 500 during this period without significant exposure to megacap growth stocks.

Buying the S&P 500 for the right reasons

The biggest takeaway from these metrics is that the S&P 500 is expensive because a handful of growth stocks are driving its returns. But that doesn’t mean that all S&P 500 stocks are pricey. In fact, that’s hardly the case.

Many consumer discretionary and consumer staples companies have dirt cheap valuations due to pullbacks in spending. Even pockets of the tech sector are beaten down, namely in the application software industry, due to concerns of AI disruption for software-as-a-service business models.

Investors looking for stocks at a better value may not want to buy the S&P 500 at an all-time high. Or at least have it make up a smaller percentage of their portfolios. Whereas folks who believe that the Ten Titans will keep driving market gains may argue that the S&P 500 can grow into its lofty valuation because these companies are extremely well run, have tons of growth potential, high margins, and exceptional balance sheets.

In sum, the S&P 500 is no longer a balanced index, but rather a growth index. And that means investors should only consider buying it if its composition and valuation suit their risk tolerance.

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Nvidia (NVDA -2.78%) is the most valuable company in the world, with a market cap of around $4.1 trillion. Every time it faces adversity, the stock finds a way to go higher.

Early this year, investors were rattled by news of a budget-friendly AI model, DeepSeek R1, developed in China. This raised doubts about the necessity of large investments in Nvidia’s next-generation chips, ultimately causing a drop in the company’s stock price. Then there were the concerns around tariffs in early April, which resulted in the stock hitting its lowest levels this year, falling to below $100.

However, time and time again, Nvidia’s stock has proven to be resilient, and it has continued to rise higher. It would need to rise by another 22% to hit yet another milestone: $5 trillion in market cap. Are there any factors that could hinder Nvidia’s progress, or is it just a matter of time before it reaches that value?

Image source: Getty Images.

Nvidia’s growth rate expected to remain above 50%

Last week, Nvidia posted its latest earnings numbers, and demand remained strong for its cutting-edge AI chips. Its revenue rose by 56% year over year, totaling $46.7 billion for the period ending July 27. That was slightly better than analyst expectations of just over $46 billion. And adjusted per-share profits of $1.05 were also higher than estimates of $1.01.

But what’s most encouraging for investors is that the guidance also looks good, as Nvidia still expects to see its growth rate to be above 50% for the current quarter. Although its growth rate is slowing down, that’s still incredibly impressive for a business of Nvidia’s size.

NVDA Revenue (Quarterly YoY Growth) data by YCharts.

Has Nvidia’s valuation finally gotten too high?

Year to date, Nvidia’s stock has risen by about 25% (as of Sept. 2). It’s trading at a price-to-earnings (P/E) multiple of around 50, which isn’t cheap, but it still may not be all that expensive given the company’s incredibly fast growth rate. And based on analyst estimates, it’s trading at a forward P/E multiple of 38.

Nvidia’s stock price has effectively become a gauge of how much growth potential investors see for AI in general. News of the DeepSeek AI model hurt its valuation temporarily, as did tariff-related news back in April, which affected the stock market as a whole. Given the robust demand anticipated for AI chips, I believe Nvidia, even at its current price, could still climb higher and be a worthwhile investment.

However, if there are any concerns or rumblings that tech companies are cutting back on AI investments, investors who are sitting on big gains may be eager to cash out, which could lead to a decline in Nvidia’s value, at least in the short term.

When might Nvidia hit $5 trillion?

I believe it’s only a matter of time before Nvidia hits a $5 trillion market cap, considering the enormous potential of AI and its likely dominance in the AI chip market for the foreseeable future. But I wouldn’t expect it to reach $5 trillion this year or even within the next 12 months. It could take multiple years, as the stock’s high valuation, combined with uncertainty in the markets due to tariffs and trade wars, may limit its near-term returns.

That’s clear from the stock’s latest earnings beat. Even though Nvidia did well and its guidance was strong, the stock hasn’t been taking off. Investors are clearly thinking about the longer-term picture, including its slowing growth, and what lies ahead. Nvidia still looks to be a solid buy for the long term, but there could be some challenges ahead for it in the short term.

Investors have ridden an incredible recovery from the April 2 “Liberation Day” tariff surprises. Since the April 8 low, the Nasdaq Composite (^IXIC 1.88%) has appreciated an incredible 40%. And of course, that recovery has taken place amid a decade-long bull market in technology growth stocks.

It’s easy to understand why. Society is becoming more digital and automated. The last 10 years have seen the emergence of cloud computing, streaming video, digital advertising, the pandemic-era boom in electronic devices and work-from-home, all topped off by the introduction of generative artificial intelligence (AI) marked by the unveiling of ChatGPT in late 2022.

However, after a long tech bull market, technology growth stocks have reached a worrying valuation level relative to other stocks, and today’s relative overvaluation mirrors an infamous period in stock market history.

Echoes of the dot-com era?

In several ways, technology stock performance and valuations are currently mirroring the extremes of the dot-com boom of the late 1990s. Unfortunately, we all know how that period ended, with a terrible “bust” that sent the Nasdaq tumbling three years in a row, eventually culminating in a 78% drawdown from the March 10, 2000, peak.

QQQ data by YCharts.

How frothy are tech stocks?

Technology innovation can be very exciting; however, that excitement often finds itself in the form of high valuations. According to data published on Charlie Bilello’s State of the Markets blog, the technology sector’s recent outperformance has now exceeded that of the height of the dot-com bubble:

Image source: Charlie Bilello’s State of the Markets blog.

The relative outperformance isn’t the only mirror to the dot-com era. Back then, tech stocks also became very large, leading to an outperformance of large stocks relative to small stocks. Similarly, tech stocks are often growth stocks with high multiples, reflecting enthusiasm over their future prospects. This is in contrast to value stocks, which trade at low multiples, usually due to their more modest growth prospects.

As you can see below, the outperformance of large stocks to small stocks, as well as growth stocks to value stocks, is at highs last seen during the dot-com boom.

Image source: Charlie Bilello’s State of the Markets blog.

Is it time to worry?

Given that higher-valued tech stocks now make up a larger portion of the index, the Schiller price-to-earnings (P/E) ratio, which adjusts for cyclicality in earnings over 10 years, while not quite at the levels of 1999, has crept up to the highest level since 1999, roughly matching the level from 2021:

S&P 500 Shiller CAPE Ratio data by YCharts. CAPE Ratio = cyclically adjusted P/E ratio.

As we all know, 2022 was also a terrible year for tech stocks. While it didn’t see a multiyear crash akin to the dot-com bust, 2022 saw the Nasdaq decline 33.1% on the year. Of course, at the end of 2022, ChatGPT came out, somewhat saving the tech sector as the AI revolution kicked off.

Counterpoints to the bubble thesis

Thus, when compared to history, tech stocks are at worrying levels. Given the similarities to the 1999 dot-com bubble and the 2021 pandemic bubble, some may think it’s time to panic and sell; however, there are also a few counter-narratives to consider.

The first is that, unlike in 1999, today’s technology giants are mostly truly diversified, cash-rich behemoths that account for a greater and greater percentage of today’s gross domestic product (GDP). While the late 1990s certainly had its leaders — including Microsoft (MSFT 0.56%), the only market leader that is in the same position today as then — they weren’t really anything like today’s tech giants, with robust cloud businesses, global scale, diversified income streams, and tremendous amounts of cash.

While market concentration in the top three weightings tends to occur before market downturns, index weighting concentration appears to be somewhat of a long-term trend now, increasing beyond prior highs in 1999 and 2008 since 2019.

Image source: Charlie Bilello State of the Markets blog.

Thus, it seems a higher weighting of the “Magnificent Seven” stocks could be a feature of today’s economy, rather than an aberration.

While it’s true that some of today’s large companies are overvalued, given their underlying strength and resilience, it’s perhaps not abnormal for them to garner higher-than-normal valuation multiples.

What investors should do now

It’s important to know that while taking note of market levels is important, it is extremely difficult to time market downturns. Famed investor Peter Lynch once said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

So, one shouldn’t abandon one’s long-term investing plan just because overall market levels may be frothy. That being said, if you need a certain amount of cash in the next one to two years, it may be a good idea to keep that money in cash or Treasury bills until then, rather than the stock market.

Furthermore, if you have a regular, methodical investing plan, stick to it. But if you are consistently adding to your portfolio every month or quarter, you may want to look at small caps, non-tech sectors, and value stocks today, rather than adding to large technology companies.

Antiques Road Trip star Angus Ashworth has recalled a heartwarming moment in his career

Antiques Road Trip star Angus Ashworth left a guest “in tears” with a valuation after his wife’s cancer battle.

The BBC antiques expert and auctioneer, who currently appears on The Yorkshire Auction House, admitted that emotions often run high when dealing with the estate of a loved one who has passed away.

In an exclusive chat with the Express, Angus shared some touching experiences with owners of antiques.

He explained that while he often witnesses “incredible” reactions, there have been those who are “just in it for the money” over the years.

Angus revealed: “We’ve had a lot of good reactions. It’s usually people that are not doing it for the money. They’re doing it because they’ve got to clear the house, so they’ve never really considered the value. It’s just part of the process, then all of a sudden you tell them they’ve made £10,000.

“There’s been several like that where they’re absolutely speechless. We’ve had some incredible reactions. People genuinely do break down into tears,” reports the Express.

“On the telly, a chap’s wife was badly ill [with cancer] and he wanted to raise enough money to get a second-hand stairlift put in to help her mobility.

“He was hoping to raise £2,000 because that’s what he needed for the stairlift and we made him £9,000. He just couldn’t comprehend it.”

The TV auctioneer went on: “You’ve always got to be mindful when you step into a house. You’ve got to read the room, and read the client. Everybody’s situation is different – some of them, it’s very straightforward and businesslike.

“But what you’ve got to remember is even if something is not saleable, and doesn’t have a commercial value, it has a sentimental value. I’ve always gone by the mantra that whenever you talk about something, you’ve got to remember it belonged to somebody’s late father, mother, brother.

“That might be their prize item. You can be enthusiastic about something, just because it’s not [worth much commercially]. There’s a lot of empathy that’s got to be given, put yourself in their shoes.”

He added: “I suppose that’s partly why people get us in – because we can take a non-attached approach to it, we can just do the job. But there are odd stories you get where you go, ‘Ugh, that’s tough’.”

Angus then recalled meeting a woman who was moving to Spain to start a new life after her son had died.

“I’d not long had children at that point and I was [holding back tears]. Every once in a while you’re just… taken aback,” he said.

Angus further shared: “A slightly different one that hasn’t aired yet was a military veteran who was badly injured and suffered very badly with PTSD, and we were the first people he’d let in his house for 15 years. That was a different sort of emotional.

“He got us because we’ve got the military connection and he felt he could let us in – that was a massive step for him. It’s not always about people who are deceased. It’s a unique job.”

He concluded: “Then you get clients where it’s all about the money and they’re there to the penny, saying ‘You didn’t quite get what we were thinking’. Auctions are like that – some things will do better than expected, some things will do worse.”

Antiques Road Trip airs on BBC One and BBC Two. The Yorkshire Auction House is available to stream on Discovery+

A decade ago, the languishing St. Louis Rams were ranked dead last in the NFL with a franchise valuation of $930 million.

Faced with an unappealing stadium lease and dwindling prospects in St. Louis, the Rams turned their attention westward, toward their Los Angeles roots. Quietly, they acquired two parcels of land at the former Hollywood Park racetrack in Inglewood, where they would eventually build SoFi Stadium, a state-of-the-art venue that would redefine the franchise and reshape the NFL’s footprint in Los Angeles.

Today, according to Sportico rankings released Wednesday, the Rams are valued at $10.43 billion, second only to the Dallas Cowboys at $12.88 billion.

This valuation comes a month after CNBC ranked Stan Kroenke’s portfolio of teams — the Rams, the NBA’s Denver Nuggets, NHL’s Colorado Avalanche and Premier League’s Arsenal — the most valuable in sports at $21.2 billion.

Cowboys chief operating officer Stephen Jones, Cowboys owner Jerry Jones and Rams owner Stan Kroenke talk before a preseason game at SoFi Stadium Saturday. The Cowboys and Rams are the two most valuable NFL franchises, according to a new Sportico report.

(Allen J. Schaben/Los Angeles Times)

The Rams join the Lakers as the city’s second sports franchise with a valuation of at least $10 billion. The latter was based on an actual sale. In June, the Buss family entered into an agreement to sell majority ownership of the Lakers to Dodgers owner Mark Walter for a franchise valuation of approximately $10 billion.

The Chargers, who are tenants at Kroenke’s stadium, are 21st on the Sportico list at $6.2 billion, one spot up from last year.

The valuations are based on the team itself, along with any businesses and real estate holdings related to the team.

David Carter, principal at The Sports Business Group and adjunct professor of sports business at USC, said teams are usually valued based on a multiple of their annual revenue, and that valuation also takes into account the likelihood of future revenue growth.

“For Kroenke and the Rams, this has always meant monetizing SoFi in as many ways possible, while simultaneously positioning the venue as a global leader in sports and entertainment,” he wrote in an email to the Times. “Having accomplished this, and with the team’s strong fan bases – both traditional and corporate – the recipe is in place to continue to achieve high valuations, especially when you also consider the team’s competitiveness of late.”

Attaching a number to these teams is largely an academic exercise, because the only true test comes when they are sold — and those sales are rare.

Three NFL franchises have changed hands in the past 10 years: the Washington Commanders (2023), Denver Broncos (2022) and Carolina Panthers (2018).

Writes Sportico’s Kurt Badenhausen: “Scarcity is a major driver in pushing team values higher, as more billionaires are minted each year and franchises are rarely added.”

Carter said the NFL franchise valuations published by Sportico and others aren’t entirely accurate because they don’t fully reflect the supply and demand for teams at any given time.

“The ultimate price, should a team be sold, will be determined by factors in real time,” he wrote, “such as how many bidders there are and how many teams are for sale at the time. This typically results in franchises being sold for more than the reported value calculated by the trade press. Nonetheless, these valuations serve as an important data point to those in the industry.”

As for the Rams, their valuation matters more directionally than numerically, reflecting success and stability in Los Angeles more than a specific price tag.

“As we enter our 10th season back in Los Angeles, Stan Kroenke’s vision to create the world’s greatest sports and entertainment district at Hollywood Park – and to build one of the NFL’s greatest stadiums – continues to help build the profile of the Rams and the NFL,” said Kevin Demoff, president of team and media operations for Kroenke Sports and Entertainment.

“While these rankings may reflect that, the focus remains on building great teams and a district that Angelenos can enjoy, more than focusing on valuations.”