Party Like It's 1999 2000 Today’s stock market environment certainly has many similarities to the dot-com era. As Eric notes in his latest issue for paid-up members, the S&P 500 today (as measured by P/E ratios) is in its highest 5% of historical norms. Hundreds of AI startups with no plans for profits are raising money at multibillion-dollar valuations. Plus, Masayoshi Son is now investing in AI. This is particularly noticeable across expensive companies. Since the start of the year, the EV-to-EBITDA ratios (a valuation metric that also considers debt) of the highest quintile of S&P 500 companies have seen multiples surge to 42.9X. That’s a 29% increase from previous multiples of 33.3X. (Companies in the lower four quintiles saw a far milder 7% rise.) Networking equipment maker Broadcom Inc. (AVGO), for instance, has seen its valuations surge 48% to a 40X EV-to-EBITDA multiple on excitement over AI data centers. 
That means it’s more important than ever to be mindful of valuations, particularly with expensive stocks. Many bets on the highest-priced AI companies today will never pay off for long-term investors. SoftBank’s $500 million investment in OpenAI will be diluted over the coming years, given the startup’s rapid cash burn rate. OpenAI would have to IPO at a $500 billion-plus valuation for SoftBank to break even. In fact, the prices of most late-stage LLM developers, like MistralAI and Anthropic, are being calculated on their buyout values, rather than on any concrete cash-flow model. (And unlike previous buyout rounds, tech giants this time around are keener on building these technologies in-house.) Even well-established players are beginning to reach the limits of valuation. In February, I wrote how Nvidia Corp. (NVDA) could be worth a split-adjusted $160 by 2027 – a figure that gave it a 125% upside at the time. Today, the chipmaker’s high prices leave just 20% more of those gains on the table. In general, every dollar of capital gains that happened yesterday leaves one fewer dollar for tomorrow. Invest in AI Stocks With “Substance” As Eric says, some of the best investments from 2000… 2008… and 2020… were not the obvious picks. Instead, copper, energy, and other “boring” companies often trounced their higher-priced tech counterparts. It’s why he’s recently pivoted away from the priciest AI bets, like Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOGL), in the Fry’s Investment Report portfolio. He recently sold both stocks for over 100% gains. Rather, he believes that uranium is a potential winner of the AI Revolution and recommended a play on the metal to his subscribers (to learn more about Fry’s Investment Report and how to join, go here). That said, not all AI stocks are expensive – or “obvious” – right now. So, which AI stocks are fairly valued and set up to perform wonderfully with the help of superior performance? But like we’ve been saying in this hype can only get you so far, and substance matters… valuation matters. That’s what my InvestorPlace colleague Louis Navellier is focusing on today, and that has him looking at AI. In fact, Louis’s entire market approach is based on substance – meaning fundamental strength as evidenced by his quantitative approach to the market – and he’s worried that investors are missing out. He’s seeing a lot of people buying overvalued stocks in the AI space, or hiding out in cash or elsewhere. Neither is the right approach. And so, Louis has put together a presentation highlighting a better way to be in AI. Here’s Louis… Recklessly investing in “the first generation” of AI stocks is going to cost you dearly in exactly the kind of financial shift I’ve spend my 47 years on Wall Street predicting again and again.
But the fact is, if you know what’s coming, and what to do, it will be among the best opportunities in 2024 to make serious gains, faster than you can imagine. Again, to access Louis’s latest research broadcast, click here. Regards, Thomas Yeung Markets Analyst, InvestorPlace Thomas Yeung is a market analyst and portfolio manager of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He is the former editor of Profit & Protection, a free e-letter about investing to profit in good times and protecting gains during the bad. | 
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