Fifteen years ago this month, the Nasdaq eclipsed 5,000 after almost tripling in two years. It then promptly collapsed as the dotcom bubble inevitably burst. But the index’s latest foray above this milestone should be more sustainable.
As Lukas Daalder of Robeco Investment Solutions puts it, the index “is no longer an overpriced playground for newcomers, but has matured into something more stable”.
It is no longer so technology-heavy, with the sector now comprising 40% of the index, rather than 60%, and the average Nasdaq company now survives for 25 years as opposed to 15. But most importantly, Nasdaq-listed firms generate far more earnings – the top ten are almost five times more profitable than in 1999 – and no longer cost the Earth, even if they aren’t exactly cheap.
The index is on a trailing (historic) price/earnings ratio of 32, a shade above the average for the past 20 years. That’s down from an insane 175 in March 2000.