When it comes to any kind of investment, it is crucial to take into consideration whether or not the current valuation is a fair one. While investing holds the promise of lucrative returns, it also carries inherent risks, particularly when asset values become inflated beyond their intrinsic worth, leading to the dreaded phenomenon known as a bubble. The dot-com bubble of the late 1990s and early 2000s serves as a poignant reminder of the perils of unchecked exuberance in valuation.

Various methods exist on how to value a company, but when it comes to spotting a bubble, the price to earnings ratio (P/E ratio) is key. This ratio compares a companies stock price to it's future expected earnings. Historically, a P/E ratio exceeding 43 times estimated earnings has often foreshadowed a bubble, as evidenced by the dot-com crash. As in the case of the dot-com bubble, the bubble eventually burst leading to wide spread losses and the collapse of numerous dot-com companies.
While high-growth industries may indeed hold promise, prudent investment decisions require a balanced assessment of risk and reward. The best example of this in today's economy is the high growth industry of artificial intelligence. Nvidia has recently become the 3rd most valuable company in the U.S. It has seen a rapid rise, but this has been backed up by rapid increases in earnings at the same time. As a result it is currently trading around 23 times future expected earnings, and in line with what you would expect to see for high growth companies.
Just like any other purchase you make in your life, if it is not a fair price for a fair product or service, then it is a opportunity best saying NO to!