Is the valuation of US stocks a "bubble"? These Middle Eastern companies' stock valuations are higher than NVIDIA's

Intelligent Finance APP noticed that there are many opinions on the valuation bubble in the US stock market. The Nasdaq 100 index has been under some pressure this summer, but this technology stock-dominated benchmark index has still risen by 16% so far this year, while the S&P 500 index continues to hover near record levels.

This is largely thanks to NVIDIA, the company that has been a major beneficiary of data center upgrades to handle artificial intelligence software competition, which has risen by 141% this year, becoming the world's third-largest company by market value. Although the company's performance outlook last week did not meet investors' expectations, with the stock falling by 6.4%, its price-earnings ratio is still 34 times.

This price is high, but compared to some of the largest companies in the Middle East, it also looks cheap. Asian stock markets have been rising this quarter, meaning that the premiums on some stocks are even higher.

An example is Saudi Arabia's ACWA Power, the country's third-largest listed company, with an expected price-earnings ratio of 136 times. This makes its holding cost about 10 times higher than a basket of European utility companies including Iberdrola and National Grid.

Mohammed Ali Yassin, founder and CEO of Oracle Financial Consultancy and Investment Company, said: "I believe that retail investors partly determine some prices." "You will find that 80% to 90% of these companies are government-owned, so the real market mechanism is not the real determining factor."

The Saudi wealth fund owns about 44% of ACWA, and since its listing in 2021, the company's shares have grown nearly 8 times. Most analysts, including Morgan Stanley and Citigroup, recommend selling for investors. A JP Morgan analyst said this summer that the company's valuation looks high compared to major peers and the overall market background.

In the United Arab Emirates, International Holding has risen by 43,000% since early 2019, becoming one of the largest companies in the world. Valuation indicators such as price-to-book ratio have soared significantly, with IHC's trading price even higher than Warren Buffett's Berkshire Hathaway.

Unlike ACWA, this Abu Dhabi-based company has no analysts tracking it, highlighting another issue faced by investors viewing the Middle East as an investment destination. Companies like IHC and its subsidiaries Alpha Dhabi and Multiply Group have little research. Abu Dhabi National Energy (Taqa) is one of the world's largest utility companies, with a market value of nearly $80 billion, and no foreign analysts have investigated it. Only three regional companies track this company, whose historical price-earnings ratio is higher than Microsoft or Apple.

"The question is, do these companies want to be covered?" Yassin said. "Sometimes, some of these companies do not see the value. They are tightly controlled by a big party that is satisfied with the status quo. It sees itself as a holding company and has spun off some core companies." Some of the Abu Dhabi companies are associated with a powerful royal member - Sheikh Tahnoon bin Zayed Al Nahyan. Several companies related to his empire were part of the August evaluation of the FTSE Russell index, which means that international investors are now more likely to become passive investors in these stocks, which have little analyst coverage