A consistent rise in global equity prices, not accompanied by a matching earnings growth, has raised concerns about the sustainability of current valuations. In particular, the tech sector valuations in US technology have raised alarms. Several reports have highlighted that the market conditions and investors’ sentiments bear a stark resemblance to the dotcom exuberance (1999-2000) period, and as such markets may have already crossed the fairness redline and moved over to the realm of bubble.
In this context, I would like to draw readers’ attention towards two particular reports that I find representative of the analysis advising caution.
“Dotcom on Steroids” by GQG Partners.
First report, titled “Dotcom on Steroids” has been published by GQG Partners, USA. This report draws parallels between the current AI-driven tech boom and the dotcom bubble of the late 1990s, warning of similar risks ahead. The report postulates-
“Today's market, particularly in the tech sector, exhibits dotcom-era overvaluation, with lofty multiples, slower earnings growth, and a weaker macroeconomic backdrop, in our view
We believe today's technology sector no longer represents forward-looking quality due to decelerating revenue growth, collapsing free cash flow, and increasing competition.”
The S&P 500 today trades at 23x TMF EPS—nearly the same as in 2000, but with slower growth (10% vs. ~18% without any stimulus then). Most tech stocks already trade at 1999-like multiples, unlike 1999’s budget surplus, the U.S. now faces fiscal deficits, weakening the backdrop.
The key points analyzed in these reports are as follows:
Rising Capital Intensity
Big Tech’s capex now consumes 50–70% of EBITDA (similar to past telecom and energy bubbles). This undermines the old thesis of tech as “hyper-scalable” with minimal investment.
· Microsoft in 1999: traded at 60x earnings with 35% revenue growth, but took 15 years to recover from the crash.
· Cisco: once the largest company during the internet bubble, driven by over-optimistic growth projections—similar to Nvidia today.
· Today’s valuations (Nvidia, Palantir, ServiceNow) resemble bubble-era extremes.
Penetration driven growth hitting peak
“Most of today's Al capital expenditures are funded by advertising revenue. Digital advertising now accounts for more than 70% of all advertising, so the penetration-driven growth story could be approaching its peak. Morgan Stanley expects the US digital ad industry to grow at a 9% compound annual growth rate (CAGR) from 2025 to 2030-less than half of its 20% CAGR between 2014 to 2019.”
· Heavy dependence on AI-related capex funded by cyclical advertisement revenues makes growth fragile.
· Analysts fear AI giants may be this generation’s “Nifty Fifty”—dominant but overpriced.
Competition landscape changing
During the 2010s, big tech was dominated by monopolies, e.g., Amazon dominated e-commerce, and Google dominated search. This not valid today. All big companies directly compete against each other in the same space. Cloud market is a good example of the deteriorating competitive landscape. This was once a stable three-player market: Microsoft, Amazon, and Alphabet. However, a disruptive fourth player (Oracle) just entered in a big way and is explicitly undercutting peers on pricing by 40%. Adding to the shakeup, CoreWeave-a financially constrained fifth player with an arguably more cutting-edge product-has announced its intention to aggressively gain market share through pricing pressure.
Big tech is now incumbent not disrupter
In the 2010s, big tech were the disruptors. Today, big tech is the incumbent, while Al is emerging as a highly disruptive force. AI winners would be known only a decade or more later, just like the internet era winner (Meta, Google) was declared several years after the bubble burst.
Conclusion: Tech is no longer uniquely superior in growth; risks of poor investment outcomes are high if bought at inflated prices.
Voltage too high, be cautious, Ambit Capital
Second report titled, “Voltage too high, be cautious”, by Ambit Capital, India, cautions that near term growth in the electrification of India theme are more than priced in, but the mid-term risks like risks (slowing demand, BESS substitution, subsidy phase-outs, rising global competition) are not yet considered. It argues that better opportunities may exist outside the tech sector with lower risk and similar returns.
· Post-Covid electrification boom (driven by transmission & distribution demand) created supply-demand gaps and high margins for equipment makers. But these conditions are peaking. Risks are rising beyond FY28 as growth slows, competition intensifies, and margins normalize.
Demand–Supply Outlook
· HV transmission equipment is currently undersupplied, but heavy capacity expansions (transformers, switchgear) will narrow the gap in 2–3 years.
· National Electricity Plan (NEP) targets show >30% decline in installations in FY27–32 vs FY22–27.
· Battery Energy Storage Systems (BESS) will reduce the need for fresh transmission infra post-2028.
· Private capex remains muted (capacity utilisation ~75%).
· PGCIL capex plan accelerates till FY28, then flattens.
Execution Risks
· Land and regulatory delays already caused FY26 targets to be cut.
· Order growth likely to peak in FY26–27, then plateau.
Policy Risks
· Gradual removal of ISTS waivers (inter-state transmission subsidies) will raise RE project costs and reduce transmission demand.
· Shift toward intra-state RE sourcing could hit long-distance transmission growth.
Competitive Landscape
· Local subsidiaries of MNCs like ABB, Siemens, Siemens Energy gained share recently, but global majors (Schneider, WEG, Nidec, Eaton, Delta) are scaling up aggressively. Schneider, in particular, is expanding 2.5–3x capacity in India.
· Export contribution shrinking for most domestic players.
Margins & Returns
· Margins peaked in FY24; price growth moderating.
· RoCE expected to decline.
· Multiples corrected from Sept/Oct 2024 but still downside risks persist.
These two are only representative reports. I find several such cautionary reports on the rising (and unsustainable) high valuations, slowing growth, rising household (retail) exposure to these high valuation stocks and sectors, elevated macro concerns and explosive geopolitical conditions.
As has been the case on every previous occasion, most market participants appear to be believing that they still have some distance to cover before this bubble burst, and they will be able to “exit’ well in time – regardless of the fact that it has never happened in the past.
In my view, the US market bubble is within striking distance of the needle. Obviously, every market in the world will feel the tremor, whenever the US tech bubble bursts. India may be no exception. However, India is much better placed this time compared to 2000, because the Indian markets have been underperforming the global markets for the past one year, FII holdings is now at lowest level since the global financial crisis, speculative activities have reduced materially due to consistent regulatory intervention, Indian markets have insignificant exposure to high-tech sectors like AI, Cloud, semi-conductors etc., and a large part of Indian markets is still reasonably valued (though not cheap).
More on strategy for the Indian markets, next week.
Also read
Dark clouds gathering on the horizon – 1
Dark clouds gathering on the horizon - 2
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