Professor Elam

FOMO Drives Tech Higher

FOMO stands for the fear of missing out.  This emotion compels investors better read risk takers to buy into stocks which have experienced considerable rally, We have observed many times in this space that the funds an dthe public crowd into  fewer stocks as the market approaches a final high. It was Rdio Corporation of America in 1929. In 1966 it was the nifty fifty including IBM. In 2000 it was the dot.com stocks. In 2007 it was the home builders. Today it it is anything remotely connected with Artificial Intelligence or AI.

How concentrated and excited is the FOMO regarding Nvidia? NVDA is the leading AI stock. The current market capitalization has risen to $4.4 trillion with a T dollars.  For perspective the entire Gross Domestic Product of Canada is $2.7 trillion. So NVDA is worth 1.48x as much as all the production of Canada!  Microsoft went nowhere when Steve Balmer was CEO. Now it is worth $3.9 trillion.

The trailing price earnings ratio is a whopping 57. This means investors pay $57 for $1 of NVDA earnings.  If the price of a share of common stock is divided by the sales per share, we get price to sales. This is now an eye watering 30 times. Those sales dollars must be made of platinum. 

There are 500 stocks in the SPX.  The Magnificent Seven tech stocks comprise one-third of the total value. The top ten socks comprise 38% of the value. The other 490 stocks fill out the other 62%.  Our point is that this is a crowded trade. It looks much like past market tops cited previously.

But the market pushes higher despite these warning signals. We do not have a final high via the wave principle.  Non-ocnfirmation by the Transport index to the Industrials continues.

Interest rates are approaching 4% on the Ten-Year Treasury note. This argues against the prevailing thinking of a FED rate cut. But the FED only sets the overnight rate. The markets set the longer-term mortgage and ten year yields. Trump claims to pay down the debt with his $40 B tariff windfall. But the debt is over $37 trillion. He will need a lot more tariff money to make a real dent in debt.

Social Mood is a windsock, not a crystal ball. In times of trouble we like to be scared. Rotten Tomatoes, a movie valuation site, lists its 100 top ten horror movies for 2025.  Debuting Friday August 8 at theaters and IMAX no less is Weapons.  The script sold for an amazing $38 million. Reviewers call it an instant horror classic.  Could this be a premonition of a change in the FOMO mood?    We should know by year end.