Market is 'richly priced' but not 'bubble territory,' says NYU's Aswath Damodaran

For another year of stellar returns with many outlooks suggesting that good times are likely to last into twenty twenty five. One obstacle though could be the market's lofty valuation. The big question now is it too rich. Let's ask the so-called Dean of Valuation Oswalt DeMota and he is NYU Stern School of Business professor of finance. Welcome back. It's good to see you again. Thank you. I mean we're going to do an amazing year. Are we too expensive now. Are we. All right. Well it's tough to follow back to back 25 percent plus years right. If we hold up to the end of the year. I mean I you know I think we got really close in the 1950s in the mid 70s. Remember the last time we had back back years for the S&P 500 which were 25 percent plus years. So if nothing else coming off that high it's going to be tough to continue in that momentum. So I think that's got to be kept in the equation somewhere. Are we. I mean would you call the market overpriced overvalued or how would you assess it. I'd come down right in the middle. It is richly priced but it's not bubble territory. I know people compared to the late 90s. Now here's the way I think about it. Am I going to sell everything and head for the hills. Now it's not that kind of market. Am I going to take every dollar of cash I haven't thrown in the market. Not that kind of market either. So if I have cash I might be a little more reluctant to put that cash to work in the market right away. But if nothing else the last two years should tell us the cost of not being in the market. People sometimes ignore it when they think about being conservative and not going to markets. But you'd have given up 60 percent upside in the last two years by staying in cash. That's a lot to try to get back by market timing. What do you make of the argument as I brought up earlier that you may not be able to get any more more multiple expansion in 2025 but you could still get a good return next year because you're going to get better earnings growth than what was anticipated in much respect because of the policies that are going to be introduced by this new administration. You buy that. You know what I'll take. Eight to 10 percent returns after the last two years. That would be good enough for me. I'm not trying to get rich in the market. I just want to preserve and grow my wealth. So I'm not looking even for double digit returns. If I make eight to 10 that's good enough. Interesting. You know when you look at the way that some of the AI related trades have gone when you when you when you look at the idea that you know the Nasdaq had a bit of a resurgence obviously. You know we got 20 K for the first time ever. Are you surprised by that. Did you figure that this broadening that had finally showed up was going to last longer. How do you assess that. Not really. I mean if you think about it tech collectively you don't count the max seven is up about 31 percent. The market's up 25 26 percent. That's where you'd expect tech to fall. So by itself it's not like tech is taking off on its own. And the segment of technology which is AI driven is a very very small segment of the overall tech sector. So I think that the air architecture part obviously the chips the good the cloud storage business have taken off. But the AI product and service markets being pretty cautious about piling into those stocks because until you can show me you can monetize those products and services I'm not jumping in. But what do you make of the outperformance of software versus chips. I mean it's been pretty dramatic over the last few months. What's the signal. I mean I think that that the architecture market has gotten ahead of itself. I mean we've had with Nvidia alone at two trillion dollars in market gap in the last year and a half. I mean at some point you've got to stop and say you're building all this architecture. What are you going to use the architecture for. So the next phase of AI is I think the use of the architecture with its software the products and services that emerge. So that's what I'd be looking for if I'm looking in the eye spaces converting that architecture to actually making money off that architecture. I think we're trying to you know take a look at what this new administration is going to bring what deregulation and tax cuts are going to mean. Doge the Department of Government Efficiency what that is going to mean. I know you have one sector square on your mind today beyond tech and that is health care. Why so much. And how much does the recent debate is growing discourse that's around the idea of health coverage the cost of it. The companies that are in the center of that public storm. No I think I define a bad business as a business but nobody's happy. The producers are not happy. The consumers are not happy. The government is not happy. And you've got definition of health care is in trouble. It was the worst performing sector of 2024. So the market's also already leading into 2025 with lots of questions. And I'm feeling that this might be a that very strange moment in time with both sides. You know Democrats and Republicans decide that something needs to be done. And that and if that's the case you're going to be you're going to see pharmaceutical companies and insurance companies in the eye of the storm. So to me that's where you're going to see a lot of action in 2025. Doesn't make it a bad sector but I think you've got to be picky about where you invest. You feel like as it relates to that that the goalposts clearly have moved. I absolutely do. I mean I I can't find a single person to defend health care as offered today in the U.S. where 20 almost 20 percent of GDP is spent on health care. And the outcomes don't reflect that spending. Clearly something needs to change. And I think that's a consensus in one sense. That's a consensus. There is going to be action. And that's why I think in 2025 I wouldn't be surprised if you saw some major actions on health care. I know what they are but they will affect the profitability and value of these businesses. Would you stay away from all of those stocks as a result. I don't have the luxury. I already have four of them in my portfolio. The question you've got to face is including United Healthcare. Would you sell it. I know I am. I did sell half of my United Healthcare leading into 2025. Again it's not a signal that I think it's overvalued but it's done well for me in my portfolio. But at this stage I think that there is a reckoning coming and I'm worried about what United Healthcare and other companies like it will feel as a consequence. I just want to make sure I got this correct. You sold half of it since the incident here in in Manhattan. Yes. OK. Professor I appreciate your time. Thank you very much. We'll talk to you soon.