Growth stocks have been largely resilient over the past month. But it’s rising to connect Yields could be a red flag for stocks trading at higher prices price/earnings (P/E) multiples.

I think it is an issue that investors should pay attention to. While I’m not predicting a stock market crash, being thoughtful about what to invest in is never a bad thing.

bond yields

Since the beginning of the month, the yield on 30-year US government bonds has increased from 4.1% to around 4.5%. The return on UK gold for the same period increased from 4.5% to 4.8%.

This means someone looking for a 30-year investment could get a 4.8% return just by purchasing bonds. And the risk is relatively low; The UK government is unlikely to default on its debts.

Investing £10,000 at 4.8% will earn me £14,400 in 30 years. So to consider anything else (e.g. shares in a company) I would have to think it could produce more than that.

The higher bond yields rise, the more a company must do to make its shares investable at the current price. Movement in the bond market is also putting pressure on growth stocks.

Nvidia

Nvidia‘s (NASDAQ:NVDA) is a great example. The company’s revenues and profits are growing rapidly, and as a result, the stock is up 224% in the last 12 months.

The current share price is $139 as I write this article. Therefore, for the investment to be a valid option, the business must be able to generate an average income of more than $6.25 per year for the next 30 years.

Analysts expect the company to generate total earnings of $16.85 per share between now and the end of 2027. At this point, the yield on the bond will be equivalent to $25.

This means Nvidia needs to grow a lot to justify its current share price. The real question is whether he can do it.

Are growth stocks in trouble?

None of this means Nvidia shares, or growth stocks in general, are overvalued or poised to fall. There’s a lot for investors to be optimistic about.

The company’s customers have extremely deep pockets. I don’t think there’s much chance of demand falling due to pressure on budgets, whether from big tech companies or nation states.

In my view, the real question is whether the business can maintain its competitive position. This is crucial to maintain high margins and increase profits.

Likes Microsoft And Meta Platforms He will know that Nvidia has an operating margin of 54%. I wouldn’t be surprised to see them invest in their own chip development to compete.

return on investment

As bond yields rise, businesses need to make more money to justify their current share prices. But growth stocks have generally been resilient over the past month.

This shows that investors are optimistic about company profits. In short, they still think companies will bring in more cash than bonds.