Aside: why are Alphabet and Meta bucketed into the Communications sector rather than the IT one? Meta kinda makes sense, but Alphabet much less so.
Are there any other notable IT companies that aren't actually part of the S&P500 IT sector?
Edit: Apparently this happened in 2018 and is known as the de-FAANGing of the IT sector. I.e. FAANG used to all be lumped in a single sector. ^SPX tried to redistribute to spread the companies across different sectors. AMZN is another notable company now outside of IT sector. https://en.wikipedia.org/wiki/Communication_services_sector_...
It does kind of make sense for alphabet and meta considering their primary revenue driver is advertising and communication platforms respectively. That would put them into Media & Communications. IT is how they get to that. For amazon it's a bit more complicated, but still it's their retail that drives their revenue where AWS accounts for like ~20% of revenue.. however in amazon's case it's also AWS that also drives more than half of its profit.
It would be interesting (but perhaps useless) to try to weigh the companies by the percentage associated with whatever index or group you're trying to build - e.g, if you're building an IT Index, and AMZN makes 50% of revenues (or profit or however you'd value "that side" of the business) - you'd deweight them by half.
So if by market cap they'd be 8% of the index, you'd have them at 4%, because half of what they do isn't IT but something else (logistics, retail).
good point, i think it'd be valuable to bring in more of these companies to this chart. with it narrowly scoped here it's perhaps (likely) not telling the full story. i would imagine theres plenty of ballooned valuations still because of AI
This also means that the pre-2018 index had a fundamentally different portfolio of companies. So comparing today to anything pre-2018 is apples-to-oranges
> This also means that the pre-2018 index had a fundamentally different portfolio of companies
o true. this is a classic reporting/analytics yoy comparison type blunder, that actually makes graph in OP kind of meaningless. much more surgical comparison is needed here. now i cant help but chuckle at the total absolute that is the headline lol. grab all "IT flavored" companies that exist today, find the ones that existed then, then compare valuations between those two periods. perhaps ignore the S&P "IT" classification entirely since that groupings definition is apparently now just a moving target between 2018 & now :shrug:
> Pretty sure I'm thinking of IGM:
actually really cool thanks for putting this on my radar
Must be using some strange definition for tech or valuations, because last I'd heard tech was some huge percentage of the S&P 500, and the index has dropped like 10% from its ATH.
Except they are fundamentally different companies now. Now they have no free cash flow and they are extremely capital intensive industrial businesses.
Another note is that this is on forward earnings. What may have just happened is analyst expectations on forward earnings have caught up what markets prices earlier. Forward earnings generally lag pricing, this happens on the way up, and on the way down..
The post defines it clearly: S&P 500 Information Technology sector. That excludes Meta, Alphabet, Amazon – which were moved to Communications and Consumer Discretionary. So the “tech” we’re looking at is more traditional software and hardware (Apple, Microsoft, Nvidia, etc.).
AI isn’t a hype anymore, average non technical people hate AI and would rather not to interact with, and tech companies started to realize that AI won’t be the solution for all of their issues, but they still used it as a scapegoat to lower wages regardless. I even noticed now companies are back to ~2022 time in hiring either FT or consultation, from my experience.
So hopefully soon we will have dirt cheap prices for ram and other chips.
> average non technical people hate AI and would rather not to interact with
So nobody asks ChatGPT for recipes any more and they're all back to Google search? What is this claim based on? Pretty much everyone I know who is non-technical uses AI for a variety of things.
From my limited viewpoint working for an S&P 500 tech company our uptake of AI is very much still on the increase. Every day we do more with AI than the previous day. We are still learning about where to use this but I think the consensus is that it can do a lot.
Recipes are a weird counterexample. Everyone I know Googles them because they're written up by chefs with specific styles and sometimes have user reviews. Asking ChatGPT will get you algorithmic food nonsense, it has no idea if those ingredients will combine or what the outcome will taste like.
just this week my daughter has used claude twice to get a recipe for a cake (was great) and also suggestion on how to make variation of smoothies that fits her taste while my wife has asked claude for recipe for some orso chicken mushroom thing (was not that good). googling the same will also give AI answer too (chicken mushroom orso was similar, cake totally different)
At least once a week I ask Claude what to cook with the last ingredients from my last trip to the groceries. I'm still to be disappointed by the results, although every time one of the three or four of its suggestions seems completely off my taste.
From my little circle of non tech folks, chatgpt is not used anymore. Don’t know what changed. It just faded. They haven’t heard of claude or openclaw either. But they rely on Google search AI for a lot of stuff
They definitely won’t pay and I’m not sure there is a viable way to inject ads.
The way google did it was very sneaky and pretty smart really. They increased the infiltration of ads slowly over time. How do you do this in a chat interface? It’s a bit too ‘in your face’ and less camouflaged. The moment they get hit with an ad they’ll just go to another model - the switching cost is zero.
I keep waiting for LLM chats to "steer" to a specific vendor's solution (in exchange for that vendor's substantial fee of course) -- so when I ask "is my UPS repairable?" i might get tips to fix, replace the battery (with $VENDOR's chinesium nonsense perhaps), or straight lied to and told the UPS is now e-waste, but consider $VENDOR's sale on UPS's right now over at this link. Perhaps an affiliate link? who knows!
I pay for LLMs so I hope they don't leak that crassness into paying clientele -- but... how would I know if they did it subtly? I wouldn't! :/
$GOOG is 2 or 3 times what it was before the AI boom, depending on when exactly you define "pre-AI boom", so this isn't quite the full story. I tended to think Google was undervalued in the early 2020s and people weren't giving enough credit to how dominant e.g. YouTube was, so maybe it's accurate now and Google won't have as strong an AI correction even if one happens.
It’s sitting at ~29 forward/trailing p/e which means that it’s likely to drop 30% if there’s a correction and even more if there’s a broader economic thing going on that causes ad spend to go down.
Something under-appreciated: If you pretend a company is paying out 100% of profits as dividends (which it theoretically potentially could, and is useful as a financial modelling tool), then the inverse of P/E, E/P, is an interest rate on the price of the stock.
Ideal P/Es thus shouldn't be flat, they should be tracking long-term bond rates. This isn't an empirical observation, just a theoretical one of what "ideal" should be. But one should rationally expect P/Es to go up when interest rates drop.
It is disappointing to me that even Shiller doesn't really consider this much.
Aside: why are Alphabet and Meta bucketed into the Communications sector rather than the IT one? Meta kinda makes sense, but Alphabet much less so.
Are there any other notable IT companies that aren't actually part of the S&P500 IT sector?
Edit: Apparently this happened in 2018 and is known as the de-FAANGing of the IT sector. I.e. FAANG used to all be lumped in a single sector. ^SPX tried to redistribute to spread the companies across different sectors. AMZN is another notable company now outside of IT sector. https://en.wikipedia.org/wiki/Communication_services_sector_...
It does kind of make sense for alphabet and meta considering their primary revenue driver is advertising and communication platforms respectively. That would put them into Media & Communications. IT is how they get to that. For amazon it's a bit more complicated, but still it's their retail that drives their revenue where AWS accounts for like ~20% of revenue.. however in amazon's case it's also AWS that also drives more than half of its profit.
It would be interesting (but perhaps useless) to try to weigh the companies by the percentage associated with whatever index or group you're trying to build - e.g, if you're building an IT Index, and AMZN makes 50% of revenues (or profit or however you'd value "that side" of the business) - you'd deweight them by half.
So if by market cap they'd be 8% of the index, you'd have them at 4%, because half of what they do isn't IT but something else (logistics, retail).
good point, i think it'd be valuable to bring in more of these companies to this chart. with it narrowly scoped here it's perhaps (likely) not telling the full story. i would imagine theres plenty of ballooned valuations still because of AI
This also means that the pre-2018 index had a fundamentally different portfolio of companies. So comparing today to anything pre-2018 is apples-to-oranges
I recall that there's an "extended tech" ETF that does a pretty good job of actually capturing the whole IT universe. Pretty sure I'm thinking of IGM: https://www.ishares.com/us/products/239769/ishares-north-ame...
> This also means that the pre-2018 index had a fundamentally different portfolio of companies
o true. this is a classic reporting/analytics yoy comparison type blunder, that actually makes graph in OP kind of meaningless. much more surgical comparison is needed here. now i cant help but chuckle at the total absolute that is the headline lol. grab all "IT flavored" companies that exist today, find the ones that existed then, then compare valuations between those two periods. perhaps ignore the S&P "IT" classification entirely since that groupings definition is apparently now just a moving target between 2018 & now :shrug:
> Pretty sure I'm thinking of IGM:
actually really cool thanks for putting this on my radar
They're both advertising companies. IT is just the medium by which they do said advertising.
Must be using some strange definition for tech or valuations, because last I'd heard tech was some huge percentage of the S&P 500, and the index has dropped like 10% from its ATH.
The definition is the first sentence of the post:
> The chart below compares the forward P/E ratios for the S&P 500 and the S&P 500 Information Technology sector.
> Tech valuations have compressed from 40x to 20x, and we are back at levels last seen before the AI boom began
Forward PE is the ratio of stock price to anticipated earnings.
If it's higher, then investors are predicting future growth in a company.
Except they are fundamentally different companies now. Now they have no free cash flow and they are extremely capital intensive industrial businesses.
Another note is that this is on forward earnings. What may have just happened is analyst expectations on forward earnings have caught up what markets prices earlier. Forward earnings generally lag pricing, this happens on the way up, and on the way down..
The post defines it clearly: S&P 500 Information Technology sector. That excludes Meta, Alphabet, Amazon – which were moved to Communications and Consumer Discretionary. So the “tech” we’re looking at is more traditional software and hardware (Apple, Microsoft, Nvidia, etc.).
AI isn’t a hype anymore, average non technical people hate AI and would rather not to interact with, and tech companies started to realize that AI won’t be the solution for all of their issues, but they still used it as a scapegoat to lower wages regardless. I even noticed now companies are back to ~2022 time in hiring either FT or consultation, from my experience.
So hopefully soon we will have dirt cheap prices for ram and other chips.
> average non technical people hate AI and would rather not to interact with
So nobody asks ChatGPT for recipes any more and they're all back to Google search? What is this claim based on? Pretty much everyone I know who is non-technical uses AI for a variety of things.
From my limited viewpoint working for an S&P 500 tech company our uptake of AI is very much still on the increase. Every day we do more with AI than the previous day. We are still learning about where to use this but I think the consensus is that it can do a lot.
Recipes are a weird counterexample. Everyone I know Googles them because they're written up by chefs with specific styles and sometimes have user reviews. Asking ChatGPT will get you algorithmic food nonsense, it has no idea if those ingredients will combine or what the outcome will taste like.
just this week my daughter has used claude twice to get a recipe for a cake (was great) and also suggestion on how to make variation of smoothies that fits her taste while my wife has asked claude for recipe for some orso chicken mushroom thing (was not that good). googling the same will also give AI answer too (chicken mushroom orso was similar, cake totally different)
At least once a week I ask Claude what to cook with the last ingredients from my last trip to the groceries. I'm still to be disappointed by the results, although every time one of the three or four of its suggestions seems completely off my taste.
From my little circle of non tech folks, chatgpt is not used anymore. Don’t know what changed. It just faded. They haven’t heard of claude or openclaw either. But they rely on Google search AI for a lot of stuff
In the meanwhile my big bad corp measures AI usage as a performance KPI
That’s easy to game. You just burn tokens.
This won’t be the metric measured for success. It will be something more tractable like tickets completed.
Absolutely not. It will be token usage.
Oh sweet summer child.
No one said corporations were smart or self preserving, they're just a money vein for the elites to suck on until they get swatted away.
I see more and more non-tech people using LLMs.
I think none of them are paying for it beyond techies, but this is definitely not because they hate AI.
They definitely won’t pay and I’m not sure there is a viable way to inject ads.
The way google did it was very sneaky and pretty smart really. They increased the infiltration of ads slowly over time. How do you do this in a chat interface? It’s a bit too ‘in your face’ and less camouflaged. The moment they get hit with an ad they’ll just go to another model - the switching cost is zero.
Google Gemini already has ads, I see them all the time and they're usually Google Shopping affiliate links.
I’ve never seen them. Perhaps they’ve determined you’re not sensitive to ads (lol).
I keep waiting for LLM chats to "steer" to a specific vendor's solution (in exchange for that vendor's substantial fee of course) -- so when I ask "is my UPS repairable?" i might get tips to fix, replace the battery (with $VENDOR's chinesium nonsense perhaps), or straight lied to and told the UPS is now e-waste, but consider $VENDOR's sale on UPS's right now over at this link. Perhaps an affiliate link? who knows!
I pay for LLMs so I hope they don't leak that crassness into paying clientele -- but... how would I know if they did it subtly? I wouldn't! :/
An app that can run queries on all LLM’s at the same time and then figure out which answer is less like an advert might be the solution lol.
A bit like ad block plus.
Or using open source models.
> average non technical people hate AI
This sounds like an alternate reality.
> average non technical people hate AI
No they don't. It's somewhat polarizing, and quite a lot of non-tech people love it.
> I even noticed now companies are back to ~2022 time in hiring either FT or consultation, from my experience.
You think hiring has surpassed the layoffs? At what wages?
Surely we'll never see the 2020-2022 highs again?
Tbf 2020-2022 were artificial, due to response to health crisis
> So hopefully soon we will have dirt cheap prices for ram and other chips.
Oh sweet summer child.
$GOOG is 2 or 3 times what it was before the AI boom, depending on when exactly you define "pre-AI boom", so this isn't quite the full story. I tended to think Google was undervalued in the early 2020s and people weren't giving enough credit to how dominant e.g. YouTube was, so maybe it's accurate now and Google won't have as strong an AI correction even if one happens.
It’s sitting at ~29 forward/trailing p/e which means that it’s likely to drop 30% if there’s a correction and even more if there’s a broader economic thing going on that causes ad spend to go down.
That's still less than a lot of other tech companies. And "15 is the natural long-run P/E" is just a rule of thumb, not some kind of iron law.
Something under-appreciated: If you pretend a company is paying out 100% of profits as dividends (which it theoretically potentially could, and is useful as a financial modelling tool), then the inverse of P/E, E/P, is an interest rate on the price of the stock.
Ideal P/Es thus shouldn't be flat, they should be tracking long-term bond rates. This isn't an empirical observation, just a theoretical one of what "ideal" should be. But one should rationally expect P/Es to go up when interest rates drop.
It is disappointing to me that even Shiller doesn't really consider this much.
Someone needs to tell OpenAI and SpaceX that
And AMD and Nvidia.
So no bubble?