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The market is being buffeted by politics, tweets, the Fed, the fear of inverted yield curves, full employment (inflation fears), and the fear of missing out -- to name a few. There are a slew of one or two year IPOs whose stock price are skyrocketing. After the January sprint Mr. Market is pausing to catch his breath. Twice it has bounced off the 200 day SMA but it is on a downtrend:

http://softwaretimes.com/pics/spx-04-24-2018.gif

Within two or three months it should break out up or down. I don't want to sell and I don't want to buy. I'm selling short term covered calls to raise a bit of cash.

BTW, with most of those IPOs I have a hard time visualizing what they do up in the clouds. Is cloud in a bubble?

How do you feel?

Denny Schlesinger
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BTW, with most of those IPOs I have a hard time visualizing what they do up in the clouds. Is cloud in a bubble?

How do you feel?

Denny Schlesinger

--------

If you feel unusually warm or cold, it is likely due to HVAC solutions warming your home.
You see, people used to just be cold and had to start a fire or something. Or they were just plain hot, and had to look for shade and a breeze.

This time - things are different.

Welcome to the new world!

Dreamer

ps...yes, "HVAC" is a Cloud analogy.
psii...yes, crappy analogy.
psiii...yes, I just cursed the market with a "this time it's different" proclamation. My bad.
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No. of Recommendations: 5
How do you feel? I try not to have any feelings about general market direction. Instead I use a data based process.

Don't want to sell or buy that in itself is a decision, wait for more information. That is what I am doing.

My general rules that being invested is default position, the market goes up more often than it goes down. Since nothing I am interested in seems especially cheap I hedged by having a higher cash position than I did 4 months ago. My indicators (most lag ) are not saying the bull is over,so maybe it's just resting, or it's too soon to tell.

The market does not need to correct by going down a lot, it can have the same effect by going sideways , like it did in 2015.This broad sideways movement has its of hills and valleys. Opportune times to trade


I think the 200 day MA has no more significance than a 193 or 206 day MA. All tell you the same thing. The present trend is not up.


Full employment= probably close to there, but so far little wage push inflation. Companies send jobs overseas, use more machines etc, they have less need to raise wages than in the past.
Fears of yield inversion= yield flattening has no predictive effect for markets

Is the Fed getting what it wants now? Maybe there's no need to push hard. IMO much of the interest rate rise is precautionary, they want to be able to lower them later.
My WAG is that the tightening will not continue much past year end, if that long. Little inflation , a subdued stock market , why should they raise rates?. Of course common sense only goes so far with the Fed since it is ruled by bureaucrats who follow consensus "rules" that are rooted deeply in the past .
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On a more serious note:

Cloud, itself, is not a bubble, imo.
There may be too many companies hoping to gain from the "cloud" stigma, which I believe is true.

Same rules apply:
Is there a moat, barriers to entry / what is competition like for their space/niche?
Competent/motivated leadership and/or Founder-led?
Are they executing and regularly meeting expectations and high growth targets?
Are they on a path to profitability or FCF, if not already?
What are their revenues based on: professional services (not always scalable) or SaaS subscriptions?

What do their products do:
Help companies be more efficient / reduce costs?
Does it employ ML, DL, or AI, or could it down the road?
Could it have a blockchain angle?
Do they help companies with their data?
Do they have access to a mammoth amount of data or user behavioral data that can be monetized down the road?
Are they involved in security?
Does it enhance consumers lives with convenience or entertainment?


Let's say the company is "We Sell Socks!" and their website is literally wesellsocksandonlysocks.com and they have no compelling differentiation, maybe not a great investment.

Or they are "We Make Digital Circles!" and their website is IWantMyCircleNow.com and literally what they are is a cloud-based digital drawing tool that let's you draw a circle on your screen at any time. Well - that seems like a limited business model. You share a group photo with a colleague. "hey...which person is the sales director?" You quickly enable your digital circle tool, draw the circle on the photo and then share the new enhanced photo with a circle around the sales director. Seems a limited-use technology.

I think it just depends.

-Dreamer
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How do I feel?

I'm confident that this is just part of investing as it has been in my decades of investing, the market goes up, the market goes down. I keep an open ear and eye on my particular investments, and don't act impetuously.

I feel like having another cup of coffee. :)

Lucky Dog
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No. of Recommendations: 6
with most of those IPOs I have a hard time visualizing what they do up in the clouds. Is cloud in a bubble?

From my point of view, the answer here is a resounding "Cloud is real"

Cloud is a transformation in the way everyone does business - it is much cheaper and more efficient, so if you don't go to the cloud, you will be left on the side of the highway. For large enterprises this means big changes - no more data centers and servers, a whole new way to do scaling, security, monitoring, disaster recovery, etc. Employees need to update their skills, execs need to get their heads around new operational advantages and risks. Legal, compliance, and security all have to change their policies and procedures.

This big a change is expensive and risky and companies that simplify or ease the change will do really well and become the bedrock of the new technology - hence the focus on growth at the expense of profits, and the huge run-up on some stocks.

As I look at the market, I don't see all cloud companies going up equally - investors are very targeted in what they invest in, looking for real success in the transformation, so it doesn't seem like a bubble to me at all. There is definitely speculation, and some of these companies will fail, but some will shoot to the moon, and I do think the Fool is helping us to separate the two.
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No. of Recommendations: 26
I agree with SteppenWulf.

The cloud is real. I use it everyday, and I've transformed from someone who built and automated infrastructure in physical data centers to one who does this in "the cloud".

The cloud offers us, finally, the means to define our infrastructure as code right along side our application code. It makes things not only easier and faster, but more malleable. In traditional data centers you had static infrastructure like data bases, centralized shared storage, firewalls, etc., all bought, paid for, and amortized over a 3-5 year period. If you wanted to change the way your applications worked, you did so within the constraints of the existing infrastructure or had to justify the expense to test, procure, and build new infrastructure.

This is a very slow, and expensive cycle. The cloud allows us to change everything by simply changing code in a text file, testing it out, and deploying it. There is, comparatively, no cost to change now.

And, as SteppenWulf stated, not all cloud companies are equal. AWS is the 800 pound gorilla. And they've done a fantastic job of creating a simple and logical migration path from existing data centers to the cloud. The Holy Grail is an entirely server-less, service-based infrastructure. And AWS has made it easy to adapt from the data center design mentality to a more micro-service, server-less based mentality. It is very general purpose, and incredibly flexible. You are able to forklift an existing data center design into AWS, and then slowly (or not) evolve it to a more flexible, service-based, server-less design.

All the other providers are more specific. Azure is fantastic is what you want is a Microsoft-centric solution. Google is great for CPU intensive number crunching applications. RackSpace is like a poor-man's AWS. And Digital Ocean is great if your applications are small and fast, but still server-based, but can take advantage of containerization.

I'm beginning to think of "the cloud" much like the PC revolution. Over time, PC manufacturers were like airlines and competed entirely on price for essentially the same standard components. It got to the point where it was no longer cheaper to build your own PC and was far more hassle. And no one ever bothered to build their own laptops. PCs became a commodity. Much like the internet itself. And it became a better idea to bet on the companies which would benefit from the technology immensely than it was to bet on the makers of that tech.

In the PC revolution, it made more sense to own Microsoft, Lotus, and AOL than it did Dell, Gateway, or IBM. When the internet came along, it made more sense to bet on companies like Amazon and Netflix than it did AOL.

So, who benefits most from clouds? Who are the clear winners there?

ANET is a good short term bet as companies want to build their own on-prem cloud for a variety of reasons. They may be a good long-term bet as well as a supplier to cloud providers, but that's not entirely clear to me yet (same for companies like UBNT and PANW).

Companies like AYX, Okta, Sumo Logic (still private), PagerDuty (still private), Cloud Health (still private) and a host of others are sure to benefit with continued growth of the cloud. Each one of them offers a solution to something which has historically been a huge pain point in data centers. But back then (now?) these things were (are?) largley handled by an "operations group". But now, with the "DevOps" movement, and Infrastructure as Code", the burden of these pain points is being shifted onto the shoulders of developers and "devops" people who now need to deal with these things at scales previously unimaginable.

With these services, all programmatically accessible "in the cloud", now make things much easier, much faster, and greatly enable companies to not have to bother with huge infrastructural expenses. You can now just as easily try out a service with your application and then ditch it and move on to the next one if you don't like it with almost no consequence to your bottom line. Before, it was a 6 month project to build out a centralized logging infrastructure and you'd be stuck with it forever.

So, yes, the cloud is very real. In the short term, the only pure cloud play to me seems to be Amazon. But all the others companies that will leverage the cloud to their advantage I think are the more profitable plays. AYX, ANET, OKTA, and SHOP definitely. And I'm sure many more to come as they become public.

--
Paul
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I feel like having another cup of coffee. :)

I had an extra cup this morning! ;)

Denny Schlesinger
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From my point of view, the answer here is a resounding "Cloud is real"

I can agree with that but that was not my question. Are cloud stock prices in bubble territory?

In a sense cloud is the most recent version of canals, railroads, and optic fiber -- transformational -- but all the previous ones went though a bubble stage. Why should this time be different?

Denny Schlesinger
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Might not stop it from becoming a bubble but many of the cloud players have long term proprietary advantages unlike commodity fiber and railroads.

Tinker
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Paul:

You answered my question from the point of view of users and I agree with you but my question is from the point of view of investors -- is investing in the cloud in bubble territory?. ;)

Denny Schlesinger
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No. of Recommendations: 14
Are cloud stock prices in bubble territory?

In my opinion, at minimum, most US cloud companies are priced for flawless execution from their managements over the next decade.

If I am paying 10-20X sales for a company within the vast majority industries, I need to be comfortable making some bold assumptions, such as:

- Negligible risk of recession for the next 10 years.
- Negligible risk of major stock market correction for the next 10 years.
- Negligible risk of government obstruction for the next 10 years.
- Negligible threat from competitor companies for the next 10 years.
- Negligible headwinds threatening industry for the next 10 years.
- Management will be able to execute flawlessly for the next 10 years.
- Investors will still be excited about the industry XX years forward therefore allowing me
to exit my position at a meaningful profit.


I personally don't have the confidence in my own ability as an investor to make bets that
require that level of overwhelming assuredness over such a long timeframe. Plus, when I look
at history, time and time again I've seen examples of richly-valued "darling" stocks causing
heartache for those who bought after massive price run-ups.

"But what about Amazon, Wal-Mart, IBM ad others. Those stocks have delivered wonderful returns over multiple decades." True, but a) they are the exception not the norm, and b) even those wonderful stocks have had multiple price drawdowns of -50% or more during their history.

With the above said, in my opinion, risk-reward does not favor US-cloud company investors at today's levels.
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<< Are cloud stock prices in bubble territory? >>

The problem is, you can't tell if something is a bubble until it pops.


Alan
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The problem is, you can't tell if something is a bubble until it pops.

Alan


That's what the conventional wisdom believes. Are we destined to drive (invest) blind?

Denny Schlesinger
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If I am paying 10-20X sales for a company within the vast majority industries, I need to be comfortable making some bold assumptions, such as:

- Negligible risk of recession for the next 10 years.
- Negligible risk of major stock market correction for the next 10 years.
- Negligible risk of government obstruction for the next 10 years.
- Negligible threat from competitor companies for the next 10 years.
- Negligible headwinds threatening industry for the next 10 years.
- Management will be able to execute flawlessly for the next 10 years.
- Investors will still be excited about the industry XX years forward therefore allowing me
to exit my position at a meaningful profit.


Steves:

Very true and I would add a concern I have been expressing for a few weeks now......we seem to be seeing several of our market favorites guiding for lower revenue in the coming year......this is very different than the past couple years where there was no stopping massive growth. Either, these companies have no earthly idea and are taking a WAG on the low end to protect against lawsuits or they really are expecting a slowdown.

This in the setting of rising interest rates and a flattening of the yield curve, etc.....it definitely has me concerned......that was part of the genesis of this post about high P/S stocks and future yield:

http://boards.fool.com/ps-and-expected-future-returns-330435...

I have committed no new money over these past few weeks trying to get a feel and planned to see how this impending earnings season and guidances were materializing.

But for sure, if one is holding a stock with a very high P/S.....that stock better keep striking on all cylinders cause the market won't take kindly to any slight miss.

Denny:

Very timely post.....thanks for bring this up!
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I think the 200 day MA has no more significance than a 193 or 206 day MA. All tell you the same thing.

It didn't but it now does. It can be considered an emergent property of the market for the simple reason that it has become tradition to use it. English is no better and no worse than any other language so why is it the international language of commerce like French used to be the international language of diplomacy, German the international language of medicine, and Latin the international language of Christianity? Complex systems have emergent properties. ;)

Denny Schlesinger
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No. of Recommendations: 12
Denny,

You answered my question from the point of view of users and I agree with you but my question is from the point of view of investors -- is investing in the cloud in bubble territory?

Ah, I see what you're getting at. Sorry, I misinterpreted what you were asking.

Are we in a bubble? I think so.

"The cloud" is the shiny, new hotness. It's where the money is. It's where the start-ups want to be. And it's where all the companies want to move ALL of their data center-bound legacy hardware because of it's promised nirvana. If you're an Angel or VC, you'll be throwing all sorts of money at "cloud companies" exactly like the ones I mentioned earlier which are still private: Pager Duty, Sumo Logic, Cloud Health, etc.

Wow. This sounds *exactly* like 20 years ago in the internet bubble, doesn't it?

I have no idea who the next Pets.com is. But it is entirely plausible to think that the bubble can and probably will expand to investors like us when those companies IP. Which just means we need to be super discriminatory about where we put our money.

I would like to hope these boards have enough tech-savvy people on them to help us weed through the crap and find the gems. I think fundamentals are essential because we are dealing with a lot of start-ups. And maybe waiting a few quarters so we can see those fundamentals play out is the better approach than chasing IPOs...

On the other hand, just like last time, there will be some which are obvious plays due to things like leadership with proven track records, or those who have pre-existed "the cloud" for a long time, have established decent customer bases, and revenue streams, and now get to cash in on the hype. ANET seems to be one of these (UBNT maybe?).

"But this time it's different!" - But maybe only because we realize it's not, and we plan and execute accordingly. Maybe it's only different this time for us?

--
Paul
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<<<Wow. This sounds *exactly* like 20 years ago in the internet bubble, doesn't it?>>>

No. From that definition whenever a new technology paradigm arrives we are in a bubble because it is the new best thing...

A bubble is when companies are insanely valued and go up not on their business prospects but because everyone thinks they will keep going up, so they keep buying them.

Look at Twilio for example, selling for 6.9 or times this year's revenues and much less next year's revenues. You might not like the stock, you might want to buy it for 1.5x revenues, but that ain't no bubble.

An absent of bubble does not mean that stocks will not go down, and go down hard, and never recover, but it does mean we are not in a bubble.

Sorry, it ain't there.

OKTA (and again I have not bought it yet, but when I go looking into a stock I go in with a preconceived notion - and this time it is contrarian that it is a commodity et al., thus how I start my examination) - 8-9x next year's revenues.

Yeah, that is pricier, but still justifiable on a fundamental basis. Sorry, it is. If stocks are worth their future cash flows, and if OKTA truly has the long-term growth potential that we have seen in many SaaS and software and even hardware companies, looking one year forward is hardly a stretch.

Market going down? DUNNO. MAYBE. COULD BE. WOULD BE ABOUT TIME, AT LEAST FOR A WHILE. But bubble...NO.

Tinker
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<< Are we destined to drive (invest) blind? >>

In fact, I'd go so far as to say that by definition, it isn't a bubble until it has popped.

So, essentially, yes. We are driving blindly. We simply can't see the future. If it were at all doable, it would have been arbitraged away by the big boys with big data.

The "advantage" that we have is that as small investors--investing our own money--we can move quickly and boldly. We have fiduciary responsibility only to ourselves. We can place a large proportion of our money in a single sector, if not a single company.

When we hit it, we hit it big. When we miss....well....you know.


Alan
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What I will say is that earnings upward surprises are turning to earnings with projections that are disappointing. That does not mean a bubble, it just means that expectations in the stock market are now ahead of where actual business was. Before expectations in the market were behind where businesses were.

Seems to be a very normal state of affairs. First you are behind, you catch up and get ahead, and then you slow down, let them catch up, and get behind, and so on it goes.

Tinker
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https://www.cnbc.com/2016/10/11/the-stock-market-is-on-the-v...

Here you go, 2016 stock market on verge of a bubble. When Fed raises rates be particularly vulnerable. Yet, I wager, that most of these so called bubble stocks are valued at a smaller multiple than they were in 2016 and yet have gone up quite a bit.

That is not to say that we are in a cusp of a sustained bull, but this conversation we are having we have had for at least the last two years if not more. During this time there have been multiple mini-crashes, and some larger crashes.

Tinker
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Btw ISRG still has an enterprise value to revenues (trailing) of more than 14, Salesforce of 8.26. these are from Yahoo!

These are large and mature but still growth companies. They have been on the stock market a long time, both through the housing crash, and yet throughout it all they never became “cheap” and always maintained a high price to sales.

If you think 6 or 8x sales is a bubble, then the stock market has been in a bubble even after the internet bubble crash.

SHOP is in the mode of a Salesforce. Whether it succeeds over these many years like CRM is TBD of course (to act intelligent I used acronyms) if SHOP is selling at 10-11x forward earnings, its multiple, as evidenced by Salesforce, is not going to contract that much moving forward.

What should be more concerning, is whether or not, as Duma is doing, you should buy more now or sit on cash waiting for another crash. I have no doubt Duma does not plan on sitting out forever, but just biding his time.

So no, with my rules of sale we are not in a bubble. And I do not think any reasonable measure could call it a bubble and be accurate. What we are witnessing is a turn around from beating expectations to now lowering expectations from what we had expected (and I do not think the market fully believes those forward projections management has given - I think they are hedging a bit - but not fully convinced that growth will fall to 25, 30, 35% this year - so if that does happen, yes, there will be another “correction” but multiples will still stay high, just not the same as now).

Obviously ISRG and CRM are two of the most powerful mature growth companies in the world. Nevertheless, their sales multiple is an example of what the up and coming crop should be able to obtain. These companies are growing faster, with an even longer runway. Unless of course ISRG and CRM are in a bubble.

Tinker
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Tinker:

I didn't bring up high P/S, Duma did. My bad feeling comes from market action which is a slippery kind of customer. The huge ups and downs remind me of late 1999 -- make 80 grand one day, lose 50 the next. Is this algos trading or something else? Watching option pricing makes it perfectly clear that it's robots doing it. In fact, robot traders are more predictable than humans.

One sign of bubble, Alan's "conventional wisdom" notwithstanding, is when valuation no longer matters. This is from a post at Saul's

When I first started following this board you were always looking at growth rates relative to PE. Now i dont seem to get any feeling of a relative valuation methodology.

Far be it from me to tell you how to pick stocks, that clearly wouldn’t make sense. It just surprises me you don’t seem to holding these stocks to any type of valuation comparison (other than who is growing faster or getting the highest retention rate). When is the price too high? Is SHOP too high at $125? Clearly you dont think so (and i dont either). But what about $200, $250 or even $500. No matter the growth rate, some price is too high as the growth rate cannot stay forever (or at least the chance of that is pretty slim).


http://boards.fool.com/first-offi-reccd-your-original-post-i...


That gets close to the greater fool game. Profits don't matter, valuation don't matter, only cash flow matters. Leading up to the 2000 bubble a very reputable author penned a piece that seems to have been removed from the web, I can't find. The title was something like Cashflow dot com. Cash from any source was all that mattered but the bubble blew up.

There are always bears and Chicken Littles. You know I'm not one of them. Some people were bears in March 2009! All I can say is that the market does not feel right and the feeling has been growing. As I said earlier, the market is taking a breather which is fine but I can't tell which way it will break out, up or down.

Denny Schlesinger
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In my rules of sale the market behaving differently is not included. One thing I examine is if it is in a bubble. And no, no it is not in a bubble. May very well be that there is greater volatility due to computer trading, but that does not equate to earnings and cash flow not mattering.

The market went up as the companies we followed kept beating and raising. Look at Nvidia, it is a 10 bagger from well before we started following it. Almost a 3 bagger from when we started following it. It did this not out of volatility but out of earnings growth, and growing its CAP and the market realizing its potential TAM.

Of course, if ASICs prove more an effective substitute for material aspects of AI moving forward (and I do think that autonomous driving may be such a field where an ASIC may be applicable, and that would be utterly awful for Nvidia if that were to be the case) Nvidia’s CAP will decrease, which will reduce its multiple, it’s TAM will decrease which will reduce its multiple, and its earnings will take a hit, which will maybe not reduce its multiple but its share price to correlate with whatever multiple the market deigns to give it.

The market is still moving with earnings. SHOP and ANET did not grow like they did out of just volatility.

The market is now in a holding pattern, as you say, but with a negative bias. And that is basically in line with what earnings are at this point in time. Nvidia is probably going to continue to blow earnings away (albeit with the crypto currency uncertainty) but all the other companies seem to be guiding downward, and thus the market bias - not fully believe in - perhaps thinking it is just take a breather (as you again say) - and thus how the market itself is trading at the moment.

Trading pretty much with a net zero, but with a negative bias, as if the market is saying, we will hedge a bit, but we do not fully believe all the more “conservative” growth projections (not yet anyways).

Thus the market will go down further if management was not being conservative but really telling it like it is.

Thus (another thus) perhaps a reason to be more scrupulous in what you own and wait for more apt times. My big thing is to buy stocks that are fundamentally so sound, and not in a bubble, that their valuations will return, even after a period of such negative bias ends.

Other than that, this observation, which I think is correct, I cannot tell you where the market will go other than, the volatility being what it is, the market is generally following the earnings momentum, and that momentum has been guided downward for the most part.

Tinker
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"The Cloud" looks like a typical infrastructure-style bubble, something at which investors throw a ton of money and end up with large overcapacity which drives down prices.

The most relevant question is: How "commoditized" is the cloud market? How easy is it for a customer to chose cloud vendor B over cloud vendor A, because B is 3% cheaper and their services are very similar or identical? And how feasible is it to make the switch from vendor A to vendor B? How portable is the stuff you have in the cloud?
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Obviously ISRG and CRM are two of the most powerful mature growth companies in the world. Nevertheless, their sales multiple is an example of what the up and coming crop should be able to obtain. These companies are growing faster, with an even longer runway. Unless of course ISRG and CRM are in a bubble.

Tinker


I get your argument and I am not thinking we are in a bubble of the 1999 variety or perhaps a bubble at all. Simply put, these stocks are riding high in an environment with guidances being lowered...hence the high P/S concern.

Three issues with your argument:

1) Like many others, you are justifying TODAY's value with next year's revenue ratios (again not considering their lower guidances

2) You have chosen two of the great companies, already proven, to compare yet-unproven companies to their standard.

3) If you look at historical P/S for ISRG and CRM, their present highs are 16 and 8.26 respectively.....ISRG's highest ever! Their lows have been 5.8 and 3.9 respectively with the average being closer to 9 and 7 respectively (CRM being less hypervalued). AT the average or low P/S, each stock is at risk....even at their historical average.

My argument has been that the highest P/S stocks are the most vulnerable in a slowing guidance environment.....that is born out by studies and by numerous anecdotes. That is why this upcomimg earnings are very important to get the nuance of guidance IMO. AMD and ALGN report today....neither which I own but still will be interesting to see how they report and how the market treats them.

So yes, I am committing no new money to the market at this time and trim some of the highest P/S....but still in the market. WE have been pigs these past couple years with numerous 3-5 multiples......I just don't want to be the hog ;)
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Duma, this is it ISRG’s highest ever. ISRG has always been too expensive. But in court so for later.

Tinker
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That should be is “not” highest ever.
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Denny, I bet you drink dark roast. :). Try some medium roast coffee....or use less grounds. LOL

Lucky Dog
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"The Cloud" looks like a typical infrastructure-style bubble, something at which investors throw a ton of money and end up with large overcapacity which drives down prices.

So far we agree.


The most relevant question is: How "commoditized" is the cloud market? How easy is it for a customer to chose cloud vendor B over cloud vendor A, because B is 3% cheaper and their services are very similar or identical? And how feasible is it to make the switch from vendor A to vendor B? How portable is the stuff you have in the cloud?

Fiber optic carriers have a great moat just like railroads and rock pits: location, location, location. If you want to send a signal from Boston to NYC you have to use the carrier that connects those points. Yet they went broke! The reason was the sharp drop in prices, not clients switching. The cloud has a cost, if prices don't support the cost the cloud providers will go broke. I watched AWS during the early days, one most prominent feature was that they kept dropping prices. Price wars only benefit customers, not the price warriors.


One thing that adds to my bad feeling is the change of rules. I already mentioned that at Saul's the concern about high prices has gone out the window. It was not long ago that Tinker praised climbing the wall of worry. Now that there seems to be no wall to climb, the reason not to worry is good companies, etc.

Changing rules in the middle of the game reminds me of my sailing days when losers wanted to change the rules mid race. Reminds me of political losers wanting to change the way votes are counted...

Denny Schlesinger
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I wanted such a granular understanding that I actually looked up wesellsocksandonlysocks.com and IWantMyCircleNow.com. Doi!

Bubble, bubble, toil, and trouble... I say stay the course. But, please, all of you smarter folks please keep posting. I’ll learn, somehow.
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<<<It was not long ago that Tinker praised climbing the wall of worry. Now that there seems to be no wall to climb, the reason not to worry is good companies, etc.>>>

On Saul’s board the WoW has been decimated, this is true. Now on to justifying valuations.

My point is that the market climbed that wall of worry and it was worthwhile to climb it to get to the other side. Now the reward to climb it is less as expectations exceed reality on the other side. Thus the size of that wall needs to come down to justify the venture of climbing it again.

Ie, the market is not completely sold on lower expectations, but it is hedging and hoping but not climbing until it can sort this out so they do not need to climb an unnecessarily high wall for what it is worth on the other side.

There, metaphor a plenty.

Tinker
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biggest clouds are AWS, Azure, and Google, more or less.

All 3 could shut down their clouds and still have considerable businesses, so I don't see them "going out of business".

The fiber optic carriers likely didn't control the world's largest software footprint, or largest search engine (and early leader in autonomous cars), or world's largest e-commerce player. Not to mention all the other stuff all 3 are working on.

That isn't even apples and oranges. More like Apples and Lobster Tacos.


Dreamer
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grab those domains while you can!

or

since the sky is falling and the market is crashing, you may want to save your money and invest in textiles.

This "internet" and "cloud" stuff is all a bubble...A BUBBLE I TELL YA!!!


Dreamer

https://www.youtube.com/watch?v=d1Cpc8Vw-2A
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Duma, this is not ISRG’s highest ever. ISRG has always been too expensive. But in court so for later.

Tinker


I just use the averages per year that you see here. Just click the valuation tabe to see all the average annual P/S ratios:

http://www.morningstar.com/stocks/xnas/isrg/quote.html

Maybe at some brief point in those years, it could have been higher....but doesn't change the argument at all......it is way up vs.the average of all those years or in any year previous.
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Fiber optic carriers have a great moat just like railroads and rock pits: location, location, location. If you want to send a signal from Boston to NYC you have to use the carrier that connects those points. Yet they went broke! The reason was the sharp drop in prices, not clients switching.


But why did prices drop if there was a moat that protected from competition? Was the moat much less impressive than thought, because you could send the data from Boston to NY via San Francisco and Austin?
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one of my general market timing indicators

https://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=8&...


this chart has a good record in bull or bear, whipsaws in laterally moving markets Buying and selling whipsaws argive you ulcers but you won't lose much money/


maybe this will turn out to be a 2015 replay,

Whatever, it sure isn't fun seeing all that red. I'm glad I took a hunk money out a few months ago, and stopped putting new money in.

But so far there is little technical evidence that this is anything more than a correction in the general market. But the best indicators are weekly or monthly, lag, and sometimes contradict each other, so it's far from perfect..

I do not have any indicator for Cloud or SaaS sectors. But I might be able to make some using ETF or mutual funds devoted to these sectors. Better late than never ?

I do not think this methodology works with individual stocks. No doubt there are plenty of better funded better equipped pros out there doing the same sort of thing with individual stocks, there is no edge. But if the signals say "go all to cash, sell everything, plan to stay there 6 months " most pros and funds can not do it , they are too big.
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I do not think this methodology works with individual stocks. No doubt there are plenty of better funded better equipped pros out there doing the same sort of thing with individual stocks, there is no edge. But if the signals say "go all to cash, sell everything, plan to stay there 6 months " most pros and funds can not do it , they are too big.

What are the indicators you are using in that chart.....I just see a shorter term MA?
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The fiber optic carriers likely didn't control the world's largest software footprint, or largest search engine (and early leader in autonomous cars), or world's largest e-commerce player. Not to mention all the other stuff all 3 are working on.

You are being too literal. The fiber optic carriers didn't exist in a vacuum either. One laid the fiber right next to their pipelines. ;)

Denny Schlesinger
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But why did prices drop if there was a moat that protected from competition?

Could be that price fixing is illegal.

Denny Schlesinger
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Could be that price fixing is illegal.


Price fixing is an agreement on prices between competitors. If you are the only one offering a service, you can't price fix. You may be subject to monopoly regulation, but I don't think fiber optic companies were ever subject to utility-style price control, or were they?

My guess - and this just speculation - is that the market was simply much more competitive than expected, moats much weaker, because you don't have to route data in a straight line, you can route it all around the country, taking advantage of the cheapest route of many possible alternatives.

As regards the cloud, the situation MAY be different.
To give a primitive example: I have a subscription for 100 GB Google drive storage space. I use this partly for backing up various translation memories and documents, but mostly for photos and videos (at 8 megabytes per photo). I pay 2 Euros a month. Now the storage is close to full. Unfortunately, I can't just subscribe for another 100 GB, the next step would be 1 TB at a much higher price.
I could certainly change the provider, but that would be a tremendous hassle and within Google everything works so well and is nicely integrated.
I'll probably have to just compress the damned photos to "free" size or perhaps spend an hour or two sorting through all that stuff I uploaded years ago and no longer need.

More serious cloud users certainly face a similar situation although of course on a vastly different scale.
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I am still in the black on every purchase I have made (that I still hold) up through last week. So the sky is falling has not happened. The market is generally going down each day, even as it went up last week, after falling down again. Although ANET is up. Don't expect it to stay that way unless the market recovers.

I think this is too complicated. It is not that there is a bubble. It is that forward business needs to be revalued due to growth slowing in most names, although still high on a sustainable basis.

if the yield curve turns negative we all pretty much know what that means most of the time. You cannot lose any money going into cash (other than taxes). You may have significant opportunity costs, and you may save yourself from significant disopportunity losses as cash is about as safe as you can get, and sometimes it is the smart thing to do.

Note, my being in the black is a temporal phenomenon, so good for me today, maybe not so much tomorrow. Just putting out some current perspective in regard.

Good day today, another case of opposing attorney laughing at my motion with his client, and then my client laughing on the way out of the door. I do enjoy these!

Go America! (ooops, that is uninclusive)...errr Go Trump! (ooops, warmonger, racist, xenophobe)...err go Barry Sanders and $15k an hour for everyone whether they work or not! Hey, only this stupid one the latter is allowed by political correctness.

Please blind yourself to the former 2 as it is wrongful thinking.

Tinker
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I am still in the black on every purchase I have made (that I still hold) up through last week. So the sky is falling has not happened.

A sample of ONE in a universe of millions is not too significant! LOL

Denny Schlesinger
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Is cloud in a bubble?

https://www.cnbc.com/2018/04/26/aws-earnings-q1-2018.html

Amazon Web Services reported sales on Thursday of $5.44 billion, compared to the $5.26 billion average estimate of analysts surveyed by FactSet. AWS contributed about 11 percent of Amazon's total revenue for the period, up from 8.5 percent in the prior quarter.

AWS continues to be a big revenue driver and even larger profit engine for its parent company, which dominates the low-margin e-commerce market. In cloud-computing infrastructure, Amazon has a substantial market share lead over Microsoft Azure, Google's Cloud platform and IBM, as well as other players like Alibaba and Oracle.

While AWS has maintained growth above 40 percent, Microsoft and Google are currently expanding much faster and picking up share.

---

AWS is just a segment of Amazon. How many NPI or Saul companies have $5.44B in sales total?

And then Microsoft reported...here is some Azure numbers:
https://finance.yahoo.com/news/microsoft-earnings-q3-2018-ea...

Microsoft’s intelligent cloud division saw revenue of $7.9 billion, an increase of 17%. Helping to push the segment higher were a 20% increase in server product and cloud services revenue and a 93% increase in Azure revenue growth.

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Google doesn't break out cloud much yet...likely waiting for number to get bigger, but stated in Q4 that it was already over $1b.

https://siliconangle.com/blog/2018/04/23/googles-ad-cloud-bu...

“Other revenues” rose 36 percent, to $4.4 billion. Given that Google announced cloud revenues hit $1 billion a quarter last quarter, they likely were a significant contributing factor. “In Q1, we saw increasing momentum,” Google Chief Executive Officer Sundar Pichai (pictured) said on the earnings call.

Pichai said the unit is signing more and bigger deals, thanks to the popularity of its cloud machine learning services and its G Suite productivity software as a service. For G Suite, he added, “Growth is at an inflection point,” and is helping to drive more customers to the Google Cloud Platform overall.

He added that cloud platform growth overall has been “very strong” thanks to what he termed an advantage in data analytics and machine learning. “Security is becoming a big differentiator for us as well,” he said.

If Google’s cloud results were positive as Pichai implied, they would bode well for earnings reports coming up on Thursday from the two biggest cloud providers, Amazon.com Inc. and Microsoft Corp.

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All this is mainly IaaS revenue. Add in CRM and all the other SaaS and Cloud Security companies, PaaS, etc etc... I think cloud is growing rapidly. To me, a bubble is unjustified prices...you can argue P/S levels but definitely appears growth in cloud-related companies is very strong.

Dreamer
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Dreamer, are you saying that if a company is doing well it's impossible for its shares to be overbought? I ask because my "bad feelings" are not about the cloud but about the stock market. ;)

Denny Schlesinger
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Amazon is selling for about 60x earnings but 2.46x enterprise value to forward revenues. Given Amazon is growing at quite the pace, most of its profits are coming from its fastest growing business, cloud, that it is so dominant that it will be the IBM/Walmart/Sears et al of this generation (so dominant for decades) and growing at this rate 2.46x sales hardly a bubble. 60x (given Amazon could reduce its expenditures if it wanted to) hardly a bubble.

Good results do not mean no bubble, but no bubble means no bubble. For me the bubbleth argument is over. Others can discuss amongst themselves.

Tinker
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With these various earnings reports coming out showing great growth in the data centers and enterprise we should c some good numbers for the picks and shovels guys.

I’m thinking of anet particularly which is all gonna come down to guidance.

Any read on what guidance might be based on reports from: intc, amd, aws,MSFT?
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40%+ growth for a company with 178 billion (not million) in revenues.

I am saying it is harder to call stocks like that overbought when they keep producing.

Compare that to the revenue numbers of cisco juniper and redback networks during the 2000 bubble. Thise were overbought.
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If the earnings reports we are getting so far are representative of most techs as a whole, the predicted "slowdown" is just not here. If it isn't, tech stocks should resume their price climb soon.
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