Why do people constantly argue overvaluation when the earnings tell a different story?

I’ve noticed this a lot, especially over the past couple of years. People constantly argue that the market is in a bubble, yet corporate earnings have continued to grow alongside major indexes. What I don’t understand is why people are so quick to call everything a bubble without even considering the earnings growth supporting them. We’re nowhere near the P/E ratios seen during some historical bubbles, and companies in indexes like the S&P 500 and QQQ are regularly evaluated and eventually replaced if they no longer meet the criteria, ensuring ONLY the strongest companies make it in. Obviously, strong earnings don’t automatically mean stocks are fairly valued, and I understand that future growth expectations play a huge role. But if earnings continue growing at a healthy pace, and keeping up with historical averages, wouldn’t that make current valuations way more reasonable than people keep suggesting? Am I overlooking something? I’ve continued to ignore these haters and have kept buying index funds and the market keeps screaming higher and the earnings are supporting that. I’d genuinely like to hear the bearish argument on why this is all magically going to crash down, if there is any. Open for discussion on any of this👍

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u/Potential_Salt_5780 12 1 day ago

Most people have no idea what a bubble is or lived through one. The worst case scenario would be pulled forward earnings, which in a couple of years would flatline or go down. However, given the current spend and demand, I don't see earnings growth slowing until at least 2028.
u/Gold_Nectarine9508 7 1 day ago

most folks on here just repeat what they heard on youtube and feel smart about it. like they discovered some secret knowledge that nobody else noticed earnings keep climbing and these same people keep moving the goalposts. first it was 2022 crash, then 2023, now they quiet or saying "just wait"
u/Somnifor 9 1 day ago

Everyone over the age of 36 has lived through a bubble as an adult. Most people have lived through a bubble. The mid 2000s were a real estate bubble the late 90s were a stock bubble, neither of these are ancient history.
u/CallMePyro 6 1 day ago

Most people are reddit are not over 36.
u/Somnifor 4 1 day ago

This may be the case but the first mass adopters of the internet are almost old enough to retire. It is probably unwise to assume everyone you are interacting with is 23, especially on an investment sub.
u/Chickenchoker2000 1 1 day ago

Of course they are. All the kids are on 4Chan
u/CallMePyro 1 1 day ago

I encourage you to try and find some data which supports your opinion
u/Potential_Salt_5780 0 1 day ago

Do you honestly think that the average Redditor is 36 yo?
u/TJMBeav 0 1 day ago

Because most of these earnings are being inflated by basically trading money with each other. It's not from organic business growth. And eventually the earnings will miss and when they do you don't want to be in the names if you are a trader. But you are fundamentally correct in your thinking, though what most people are trying to say is the earnings growth isn't real and isn't sustainable. But trust me, they have been getting their asses handed to them (ask me how I know!)
u/JustBrowsinAndVibin 1 1 day ago

Nvidia has invested $100B total over the last few years. They made $100B in the last quarter alone. They’re going to make another $100B this quarter. I don’t think your numbers are working out the way you hope.
u/Low_Pineapple_1558 4 1 day ago

Nvidia earnings rely on continued data center buildouts. If data centers stop getting built for whatever reason, Nvidia crashes 80%. If AI falls short there are a bunch of companies that will get cut in half, and our gdp will take a meaningful hit.
u/JustBrowsinAndVibin 0 1 day ago

A lot of ifs with very little evidence that any of that will happen anytime soon.
u/Low_Pineapple_1558 1 1 day ago

If there were evidence it would happen soon the crash would already be underway. I'm just pointing out the risk.
u/TJMBeav 1 1 day ago

A lot of ifs on the other side as well
u/TJMBeav 1 1 day ago

Somebody gets it
u/McOmghall 1 1 day ago

That's the point, NVidia is financing itself. Where do you think that 100B comes from?
u/JustBrowsinAndVibin 0 1 day ago

Their total investment is $100B. They’ll make $200B in the next 6 months. Then it’ll be $400B in the next 12 months (likely more). I think you’re missing a few $100B of Nvidia “financing itself”.
u/McOmghall 3 1 day ago

Are you seriously using *projected* earnings that predict a 100% growth quarter on quarter? Okay, you do you man.
u/JustBrowsinAndVibin 1 1 day ago

$100B earned in Q2 followed by $100B in Q3, then another $100B in Q4 and so forth assumes 0% growth.
u/McOmghall 1 1 day ago

Currently analysts are assuming 74% growth ANUALLY, which is 15% quarterly. And we'll see about that.
u/JustBrowsinAndVibin 1 1 day ago

They’re already pretty much sold out for 2027 so I wouldn’t bet against it. Good luck.
u/TJMBeav 1 1 day ago

Then why are all the hyperscalers out raising money by selling bonds? These guys have been cash cows with pristine balance sheet for going on decades, yet now that bond yeilds are hitting this centuries highs they are out borrowing? I don't know man, something is fishy
u/JustBrowsinAndVibin 1 1 day ago

Costs are high upfront. They need to build the datacenters first before they can make money off of it. Their growing growth rates show their earlier investments starting to pay off. Negative cash flow is expected to peak next year.
u/TJMBeav 1 1 day ago

Assuming they get the power then maybe next year. Oh, yeah, they gotta get that water too if they are going to be self producing power. As a retired Chemical Engineer who worked in the Utility industry for a decade and heavy industry for 4 decades I have an advantage over you business dudes. I know first hand that getting power, or the permits to generate power is not an easy thing, and water is even harder. I think a lot of those projects are going to be hitting stall speed soon. In fact, I am betting that when earnings come out you will be getting a ton of double talk that will essentially say that those projects are not proceeding as rapidly as they had hoped. It's a good bet so I've loaded up on longer dated index puts. We'll see soon enough
u/JustBrowsinAndVibin 1 1 day ago

/u/remindmebot 2 months
u/nufli 2 1 day ago

Organic business growth is when businesses buy from each other... not necessarily disagreeing with your conclusion but Microsoft selling their products and buying electricity is growth if the amount increases. You can argue about how concentrated it is, leading to risk from concentration, but it's still organic growth.
u/MiddleAgedSponger 6 1 day ago

You didn't mention competition eventually compressing margins. Most newer industries have a period of over build and wasted CapX. It's not different this time. The issue isn't if, it's when, but the timing is the hardest part.
u/_176_ 1 1 day ago

Nobody knows where this is going to end up but it's an extremely valuable breakthrough in technology that will change the world. I think the hard part is knowing if any specific company captures a lot of the value or if it becomes a commodity or what.
u/[deleted] 1 1 day ago

[removed] — already gone when the archive first saw it
u/thorn960 12 1 day ago

All the companies making picks and shovels in the AI race have great fundamentals and are making lots of money. All those companies are dependent on the companies developing the LLMs for those numbers. The companies making LLMs are not making money yet. Making picks and shovels is also a cyclical thing and people are worried about when that cycle ends and whether we could be overbuilding AI centers and then suddenly having a drop in demand. Almost every boom goes bust. It doesn't meant that AI won't be ultimately successful but there will likely be cycles.
u/_176_ -2 1 day ago

Anthropic is growing revenue at 1,400%/year with 50% inference margins and is expected to hit profitability this year. At their current growth rate they’ll hit $2 quadrillion in revenue by 2035.
u/HairyBushies 2 1 day ago

Have you read their leaked S1? They’re only profitable when you remove certain expenses, which makes zero sense. It’s like what Munger said: when you hear EBITDA, just replace it with bullshit earnings. I like Anthropic and use their products, paying for them. Their biggest challenge is the commoditization of token costs. When a free model is 90-95% as good, that puts a lot of downward pressure on price and hence profits. There’s a floor on the model that’s being used to value Anthropic/Open AI. I just don’t believe that floor is sustainable and they’re not being honest about that. That’s my biggest concern.
u/Chickenchoker2000 2 1 day ago

Good point. A lot of companies push AI at all cost and then get hit with paying for all the token cost and then scale back. It was the same thing with companies moving to cloud. Private sector starting moving from on prem to cloud at crazy rates. Then they they get hit with their monthly server and storage costs and move back to a hybrid model
u/_176_ 1 1 day ago

Yes, they’re currently profitable if you remove certain expenses. They will be profitable within a year. And they’re growing revenue at 1,400% YoY with 50% margins on inference, and those margins are growing quickly, they’re expected to get above 80%. Reddit is so funny with the hivemand. /r/investing is always convinced that Wall St is stupid. “AI is a bubble despite 1,400% revenue growth because… well… obviously companies are stupid for using it.”
u/thorn960 2 1 day ago

Lot's of creative bookkeeping at play there.
u/[deleted] 1 1 day ago

[deleted] — already gone when the archive first saw it
u/_176_ 1 1 day ago

Not really. They're growing revenue at 1,400% YoY since inception. They're above that rate in 2026, closer to 1,700%. And they're projected to have an operating profit next year with full GAAP net profitability within 2 years.
u/Woopig170 1 1 day ago

I can say random numbers to but that doesn’t make them true
u/_176_ 1 1 day ago

And being a moron doesn't mean the numbers I said aren't true. Which number do you dispute? They've average 1,400% revenue growth since inception and it's accelerating. They're on pace to grow revenue around 1,700% in 2026. Go ahead, do the math on $70b * 14^10 and let me know where they'd be in 10 years if the trend holds. Obviously their growth rate will slow down but I'm pointing out how ridiculous fast they've been growing. Edit: My bad, it's $20 sextillion, way more than $2 quadrillion.
u/JustBrowsinAndVibin 1 1 day ago

They don’t look at the actual numbers.
u/reidmrdotcom 5 1 day ago

I read, but don't know how to confirm it, that the S&P 500 companies total value is about the same as the rest of the world index outside of the US combined. If that is true, that in itself seems like a huge bubble. Reminds me of the Tokyo real estate bubble when at one time just the royal grounds were worth more than San Francisco or something.
u/WAtHome 3 1 day ago

Approx $68T US vs $150T World. So let’s say \~45%.
u/reidmrdotcom 0 1 day ago

Thanks for finding that. That's pretty lopsided to me and I think where folks talk about a bubble! Well, for me, that's a pretty clear sign of a bubble.
u/Appropriate_Nebula67 1 1 day ago

The top of the S&P dominates the planet, not just the USA. I'm in the UK typing this on an ASUS PC running Microsoft Windows with Nvidia chips.
u/phybere 5 1 day ago

It's because CAPE is widely seen as a predictor. https://www.multpl.com/shiller-pe We are near record CAPE, even if the absolute P/E isn't as high.
u/OsamaBagHolding -2 1 day ago

That just shows me we've got more room to run baby 😎
u/PaperHandsTheDip 1 1 day ago

They assume that market go up must come crashing back down, so sit it out. It goes up even more... and they missed out. It's a way to cope
u/Low_Pineapple_1558 0 1 day ago

I don't think we're in a bubble, but the arguement is that OpenAI/Anthropic are burning cash like wild and are unsustainable. Earnings are high because private investors are pooring hundreds of billions into private companies with unproven business models. If they fail, the earnings go poof and the bubble pops.
u/Chickenchoker2000 1 1 day ago

The rising yields will start to have an impact on that. It is going to cost more to borrow or finance those investments. Either OpenAI/Anthropic will need to show serious earnings numbers or investment dollars will fall or cost too much for them to continue
u/Intelligent-Love5146 2 1 day ago

Same is it ever was. Doom and gloom makes headlines. The market going up over time is the default mode and is not interesting. It doesn’t drive engagement or eyeballs with content. Market crash scenarios. Epic corporate failure. That’s what people root for because it’s interesting and it makes them feel better too.
u/Petit_Nicolas1964 2 1 day ago

Certain ‘value investors‘ argued for the last 10 years that Nvidia was overvalued.
u/Not_Sure_68 4 1 day ago

The problem is that "the earnings" are massively concentrated in four companies. MSFT, NVDA, META, and AAPL. Those four companies accounted for 300 pts of SPY gain last quarter, while the other 496 companies combined for -150pts. Because of the weighting of the index, 41% of new inflows go to the top 10(2%) companies. Nvidia in particular is so concentrated by the weighting mechanism that it alone gets new investment flow equal to the bottom 256(51.2%) of companies...combined. The result is two different S & P 500s in one. Since September 14, the cap weighted S & P 500 is up 2.32%, while the Equal Weighted S & P 500(RSP) is actually -.95% during that time. What you're looking at is a bear market in the broader market being hidden by weighting mechanisms. The top few companies feast, while all the other companies are starved and most are already in a correction...or even bear markets. When the few tech leaders turn down, the index will drop like a stone.
u/JoeInOR 1 1 day ago

A ton is of the spend is capex, which is showing up as earnings for the chip makers and not yet as expenses for the hyperscalers. Eventually income at the hyperscalers will be squeezed hard by depreciation while the investment in chips will taper off.
u/Chickenchoker2000 1 1 day ago

That is what bothers me a bit. Here we are seeing TMSC and RAM manufacturers marching upward in valuation due to order for chips and GPUs for all these data centres being planned. That is the key part. They are being planned. They don’t have the infrastructure yet built for all these data centres and all those GPUs purchased are just devaluing themselves waiting to be used. What’s the lifespan on a GPU? 3-5 years? Everything being bought today will be obsolete before the data centres are actually built
u/Appropriate_Nebula67 1 1 day ago

You know you're in a bubble when the crowd is screaming that it's not a bubble, it's the New Normal. The current grouchiness is highly contra-indicative of an imminent crash. The last two big drops (2020 & 2022) were caused by externalities, that can happen at any time. 2000 was the dot.com bubble, 2008 was the sub-prime mortgage bubble. The psychology currently bears no relation to those times.
u/Sensitive-Exam649 1 1 day ago

The problem with a bubble is the earning are not spread out evenly though the economy. Right now AI stocks are doing great but the rest of the economy and market is not doing well due to inflation and high prices due to traiffs and the high cost of healthcare. The largest c ompanes in The S&P500 are doing well but most of the index is not doing well. I grew up in the 70's and saw the dot com bubble burst and the 2008 recession. Just brefore those events it looked like it is now.
u/keith1301 1 1 day ago

You would be correct if the earnings expectations come in as forecasted. History says it almost never happens in these scenarios. The US market sits at a CAPE of about 41. The record says the multiple will probably — on the order of two-in-three — fall back below 25 within three years, and that when expensive markets correct, the normal size of the fall is about 40% in real terms. The odds are a flat per-year hazard, not something that rises the longer the market stays expensive, so the evidence supports a likelihood, not a date. How often expensive markets correct, and how fast. Across 21 countries from 1975 to 2022, there are 52 country-years where the five-year P/E was 30 or higher. From those starts the market was back below 25 within one year about 25% of the time, within two years about 50%, within three years about 70%. The rest took longer; Japan's two episodes ran seven years each. We are in year 9.
u/_ii_ 1 1 day ago

It’s really simple, here are the rules: \- it’s overvalued if i didn’t buy it and have no plans to do so \- it’s undervalued if i already bought it \- the market is irrational if my stocks go down \- it’s a bubble if i sold and it goes up, again, and again