How Bad Will It Get? How Long Will It Last?
By George Gilder and Richard Vigilante
Technology investors are living in a paradox.
Tech is traditionally one of the sectors most vulnerable to market turbulence because tech stocks tend to be at least fully priced, and commonly overpriced. And they certainly have been battered over the past three months. That at least is consistent with expectations.
The paradox is that tech stocks—especially semiconductors—were not overpriced before the Trump Slump and are likely to prove exceptionally resilient. Far from the most vulnerable sector, they will prove to be among the strongest.
Over at the Gilder’s Technology Report, long before the slump we had been taking the temperature of high-fliers such as Nvidia (NASDAQ: NVDA) regularly. Well, with a price to sales ratio in the 40s at one point, why wouldn’t we be keeping close track?
Even back then, using conservative valuation methods, the stock, if not cheap, never looked much overpriced.
Today at more than 25% off its 52-week high, NVDA is somewhere between 25% and 50% underpriced. Discount that a bit for the medium-term risk of disruption run by any company with a 90% market share and a 60% operating margin and NVDA looks more than ever like a stock we want to own.
Taiwan Semiconductor (NYSE: TSM), the manufacturer to nearly all leading design firms (including NVDA) even at its January 2025 all time high of circa $225, was underpriced considering its three-year earnings compound annual growth rate (CAGR) of 25% and operating margins in the low 40% range.
SK Hynix (KS 000660), dissed by Mr. Market as if it were still a maker of commoditized memories rather than a crucial enabler of Artificial Intelligence (AI) offering successive state-of-the-art high-bandwidth memories, never got close to being overpriced. It is now a total steal with a PE (price-to-earnings) ratio under 5 and a PEG (price/earnings growth) ratio of a ridiculous 0.2.
Burned in the memory of technology investors of a certain age is the great Tech Wreck of 2000. This is not like that, at all. Though many of the companies ravaged in those days went on to make magnificent contributions to the global economy, few had yet justified their lofty prices by impressive earnings growth, or even revenue growth. With graphs of the Federal Reserve target rate looking like an especially scary roller coaster, Mr. Market had his enthusiasm beaten out of him. He lost faith that the earnings to justify lofty prices would be forthcoming.
This time around, we had the earnings in hand. Despite nervousness about trade wars, we still mostly have them.
The case for tech resilience, though, goes beyond current earnings. Semiconductors are transforming the world economy…again, and this time more powerfully than ever. The productivity improvements delivered by the first 50 years of silicon era pale in comparison with what AI is already doing to the world economy, and what it has already done is not a fraction of what is to come.
The “animated world” in which nearly every man-made object is equipped with (a) super-sensors to evaluate changes in its environment, (b) local AI to interpret that sense data, and (c) actuating micro machines to respond will generate wealth with less human effort than ever in history.
Sure, we will have cars that drive themselves. But we will also have roads that repair themselves, factories that build themselves, robots better than any doctor or surgeon, and neo-materials stronger, lighter and cheaper than any variation of steel, or aluminum, or plastic. Total energy use will climb because it always does, but energy used for any given task today will fall by at least an order of magnitude.
We hate the tariffs. We hate the pessimism of the populists who believe we can compete with the Asian horde only by cheating. We hate the envy and despair that now fuels both political parties. Those things will slow the future, but they will not stop it. A decade from now, so awash will the world be in wealth that it will be hard even to remember the grim, defeatist slogans of today. We face a future of staggering beauty so long as we keep the faith in freedom.