Is the NASDAQ 100 $QQQ really a “bubble”?

The index currently trades at a total market capitalization of $12.8 trillion, on $382 billion in trailing net income.

This equates to a trailing P/E of 33.5.

The top ten components in the NASDAQ 100 by market cap (i.e. FAANGMA or “big tech”) trade at a combined $7.8 trillion in market capitalization on $183 billion in earnings (P/E of 42.9x).

These companies certainly aren’t cheap. But “bubble” is a dirty word...

As of the end of 2001, the “dot com bubble” had collapsed, and the NASDAQ 100 had fallen roughly 70% from its bubble highs.

After such a precipitous decline, one would expect the index to trade at reasonable multiples, certainly relative to today’s levels...

But the data tells a different story.

As of December 31, 2001, the NASDAQ 100 traded at a total market cap of $1.1 trillion on *negative* earnings.

The top ten companies — including Cisco, Oracle, and Worldcom — also combined for *negative* earnings.

Even if we removed all of the loss-making companies from the index, the P/E ratio was 51.7x, roughly twenty turns higher than the index today.

And remember, this came *after* a 70% drawdown.

This all isn’t to say the current NASDAQ is “cheap”, but it also isn’t fair to call it a “bubble”.

“Bubble” valuations are a ways away — for now...

Note: Please excuse my horribly blurry excel screenshots