Marais points out that about half of the US market's returns stem from stable sources like dividend yield and revenue growth, contributing around 7% to the overall return. However, the other 7% is attributed to less sustainable factors, such as multiple and margin expansions. He cautions against assuming these factors will continue to drive returns indefinitely, as expectations of further growth from already record-high margins appear overly optimistic.
Valuation concerns are most evident within the mega-cap technology sector, where high-profile companies like Apple maintain price-to-earnings ratios exceeding 30x. This environment urges investors to be discerning in their market selections and stresses the importance of diversification. Marais suggests that the focus should shift from identifying attractive market segments to cautiously avoiding overvalued sectors.
Despite the growing interest in artificial intelligence (AI), Marais advises caution regarding the tech giants heavily invested in the field. There are questions about the sustainability of consumer willingness to pay for AI services, especially considering the substantial capital expenditures required to sustain AI systems. While some AI tools are currently offered for minimal cost, the long-term cost and demand dynamics remain uncertain as the venture ecosystem currently subsidizes end-user pricing. The true demand at full cost remains an open question.
