Are Nvidia, Eli Lilly, AMD’s High Equity Valuations In Peril From Higher Rates?
Higher long-term rates typically matter a lot to equity valuations. However, according to DataTrek, today’s mega-cap stocks are likely to weather the current higher rate environment.
- Nvidia Corporation (NASDAQ:NVDA) has a price-to-earnings (P/E) ratio of 65.8
- Eli Lilly And Company (NYSE:LLY) even higher at 131
- Advanced Micro Devices Inc (NASDAQ:AMD), with a gigantic 334
See the chart below.
DataTrek puts the current average Shiller p/e of 34.1 into some context.
The Fed’s aggressive rate cycle in 2022 and 2023 did not fundamentally spook equities anywhere near as much as what happened in the 1970s, the data firm noted.
“The yield volatility of the 1970s, driven first by rampant inflation and then the Fed’s response, cast a long shadow. It took stocks decades to get past those events,” it added.
During the 1970s and 1980s, Treasury yield volatility increased. Ten-year rates hit 16% in 1981, before falling back to 9% in 1990 as inflation skyrocketed during two oil crises. In response, Shiller p/e average fell to just 11x in the 1980s.
“Uncertainty surrounding long-term interest rates has had a profound effect on equity valuations over the last 50 years,” DataTrek analysts said.
