The provided transcript does not explicitly mention Google or Alphabet. While the discussion centers on the "Magnificent Seven" tech giants, no specific company names beyond NVIDIA are explicitly stated.
This Bloomberg Television segment features Aswath Damodaran, a New York University finance professor, discussing the current market valuation of the "Magnificent Seven" tech giants. Damodaran expresses concerns about the market's seemingly uncorrected trajectory and the lack of consideration for potential future crises. He analyzes the companies' performance, focusing on earnings, cash flow, and the potential risks and opportunities within the AI market.
Professor Damodaran identifies two distinct "games" influencing market behavior:
The Pricing Game: Driven by mood and momentum, this game largely ignores fundamentals. In this game, emotions and market trends dictate pricing, irrespective of a company's underlying financial health or future prospects.
The Investing Game: This game focuses on fundamentals – earnings, cash flows, and other financial metrics – to determine a company's true value. Investing decisions are based on a rational assessment of a company's long-term prospects.
In the current situation with the Magnificent Seven tech giants, Damodaran argues the market is primarily playing the "pricing game." The strong mood and momentum surrounding these companies, fueled by their growth and the potential of AI, have led to valuations that, in his view, overshadow any fundamental analysis of potential risks and long-term sustainability. The market's focus on short-term gains and positive sentiment overrides a deeper consideration of financial realities, according to his perspective.
Imagine you have some really cool toys. Everyone wants them, so the price goes way up! That's like the "pricing game" – people are excited, and they don't really care how much the toys actually cost.
But some people are smarter. They look at the toys and think, "Are these toys really worth that much money? Will they still be fun to play with next year?" That's the "investing game" – they're thinking about the toy's real value, not just how popular it is right now.
Right now, everyone is so excited about some super-popular tech toys that they're not really thinking if those toys are actually worth all the money people are paying. They're playing the "pricing game" – getting caught up in the excitement, not really looking at the toys carefully. Professor Damodaran is worried that people are paying too much for these popular toys because they're too excited.
