JP Morgan has a report out on the internet sector and they make a good point that explains a lot of the exploding growth of internet stocks: there just isn’t that much growth elsewhere in the stock market.
“Our analysis of S&P 500 companies shows investors are willing to pay for outsized revenue growth as it suggests more sustainable long term EPS growth…Only 9% of companies in the S&P 500 are growing revenue above 15% and they trade at a ~60% premium to the rest of the index,” they write.
In other words, one reason why investors are bidding up internet stocks is because there isn’t growth anywhere else, and investors want growth.
Here’s the chart:
Photo: JP Morgan
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