High-valuation stocks are typically characterized by metrics such as high price-to-earnings (P/E) ratios, price-to-sales ratios, and enterprise value to EBITDA (EV/EBITDA) multiples. These high valuations often mean strong investor confidence in a company’s future growth potential. However, they also imply that the market has priced in substantial future earnings growth, leaving less margin for error if the company fails to meet expectations.
Investing in high-valuation stocks has been a subject of debate among investors for some time. While some investors argue that these stocks are overvalued and pose a risk of correction, others view them as opportunities to gain exposure to industry leading companies with strong growth potential. In the U.S. market, high-valuation stocks are often associated with technology, healthcare, and consumer sectors, where innovation, brand strength, and market dominance justify their premium pricing.
Support for High-Valuation Stocks
The current market environment has been supportive of high-valuation stocks. In a February interview with CNBC, Fidelity Investments’ Director of Global Macro, Jurrien Timmer, noted that the bull market, which is around 28 months old now, has delivered substantial returns. While some market cycles end around the 30-month mark, history shows that many extend further. Strong earnings performance has supported valuations, with 78% of companies beating expectations in the fourth-quarter earnings season.
Echoing this sentiment, in a February discussion on CNBC, Ed Yardeni of Yardeni Research highlighted that while valuations are stretched, the earnings landscape remains strong. He emphasized that stock markets are primarily driven by earnings and valuation dynamics. Even though high-valuation stocks like the “Magnificent Seven” have stopped rising on a valuation basis, their earnings potential continues to look promising. Sectors like AI, robotics, and automation remain key drivers of long-term growth, fuelling investor confidence.
While earnings continue to support valuations, some experts argue that broader macroeconomic conditions play an equally important role. Julian Emanuel, senior managing director at Evercore ISI, provided good context in CNBC’s ‘Closing Bell’ program on March 19. He noted that valuations have moderated from “very expensive” to just “expensive,” suggesting that some of the issues have been factored in. More importantly, he emphasized that valuation alone does not end bull markets. Unlike previous cycles, where an uncooperative Federal Reserve contributed to market downturns, Emanuel believes that the Fed’s expected rate cuts in 2025 will provide continued support. Additionally, he points out that bond yields have remained contained, which reduces competition for equities and supports higher valuations.
Despite concerns over rising bond yields and a maturing economic cycle, the fundamentals of the U.S. economy remain strong. Ed Yardeni pointed to steady employment levels and robust retail sales growth, which suggest that consumer spending remains healthy. As long as corporate earnings continue to support current valuations, the case for investing in high-valuation stocks remains intact.
Risks From Yields and Sector-Specific Issues
That said, these stocks aren’t without risks. One of the biggest risks to high-valuation stocks is the potential for higher interest rates. Research has pointed out that if long-term yields rise above 5%, it could create more competition for equities. When risk-free returns from government bonds become more attractive, investors may demand higher risk premiums from stocks, leading to valuation corrections.
Additionally, sector-specific challenges can impact high-valuation stocks. For example, companies in the artificial intelligence (AI) and cloud computing sectors, have generally received high valuations based on growth expectations. When expectations are reset due to some sector dynamics, these stocks often tend to correct first.
Investors looking to invest in high-valuation stocks should focus on companies with strong fundamentals and long-term growth drivers. Companies with dominant market positions, innovative product offerings, and recurring revenue models tend to justify their premium valuations.
A successful business owner seeing their business valuation soar on the capital markets.
Our Methodology
To identify the 10 high-valuation stocks favoured by billionaires, we began by using online stock screeners to filter companies trading at a forward price-to-earnings (P/E) ratio between 50 and 150, as valuations above this range tend to carry higher risk due to elevated growth expectations. Next, we analyzed Insider Monkey’s database of billionaire holdings to determine which of these high-valuation stocks were most favoured by billionaire investors. Finally, we ranked top 10 of the shortlisted stocks in ascending order based on the number of billionaire investors holding stakes in each company as of Q4 2024. Additionally, we provided insights into hedge fund sentiment surrounding these stocks using Insider Monkey’s Q4 2024 hedge fund holdings database.
Note: All pricing data is as of market close on March 21.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 High-Valuation Stocks to Buy According to Billionaires
10. CrowdStrike Holdings Inc. (NASDAQ:CRWD)
Forward P/E: 105.3
Number of Billionaire Investors: 15
Number of Hedge Fund Holders: 77
CrowdStrike Holdings Inc. (NASDAQ:CRWD) is a leading cybersecurity company specializing in cloud-native endpoint protection, threat intelligence, and incident response services. Its flagship Falcon platform leverages artificial intelligence (AI) and behavioural analytics to detect and prevent cyber threats in real-time. CrowdStrike serves enterprises and government agencies worldwide.
Aristotle Atlantic Partners, LLC, an investment advisory firm, in its Q4 2024 Core Equity Strategy investor letter, highlighted their outlook for strong growth in cloud cybersecurity as businesses shift from on-premises to cloud systems. They see CrowdStrike Holdings Inc. (NASDAQ:CRWD) as well-positioned to benefit due to its early entry, broad product offerings, and strong cloud integrations. Rising cyber threats, particularly from AI-driven state-sponsored attacks, are boosting demand for advanced security. With the total addressable market set to expand over four years, the company’s cloud-native platform and high customer retention provide a strong competitive edge.
In another positive development, a Bank of America analyst reiterated a Buy rating and maintained a $420 price target for CrowdStrike shares in a report published around March 19. The analyst highlighted his meetings with Burt Podbere, the CFO of CrowdStrike Holdings Inc. (NASDAQ:CRWD), and Anurag Saha, the Chief Accounting Officer, after which he felt more confident about the company’s ability to recover strongly after the impact of the July outage.
The analyst explained to investors that CrowdStrike’s strategic and financial measures taken after the outage have positioned the company well for growth. According to the analyst, management expects the net new ARR (nnARR) to show improvement in the second half of the year and anticipates that concerns about lingering effects of the outage will fade completely by that time.
9. Reddit Inc. (NYSE:RDDT)
Forward P/E: 87.7
Number of Billionaire Investors: 15
Number of Hedge Fund Holders: 87
Reddit Inc. (NYSE:RDDT) is a social media and online discussion platform where users participate in conversations across thousands of communities, known as “subreddits.” By combining user-generated content, discussion forums, and trending topics, the company has built a highly engaged audience.
Reddit Inc. (NYSE:RDDT) primarily generates revenue through digital advertising and premium subscriptions. As online communities continue to shape digital interactions, the company remains a key player in the social media space, leveraging data-driven ad placements and community engagement to drive growth. In the three months ended December 31, 2024, Reddit reported an average of 101.7 million daily active uniques (DAUq) globally.
The stock has experienced significant volatility since the beginning of the year, falling over 50% in the month leading up to March 10. Investor sentiment turned negative due to weaker user growth in the latest quarter, impacted by Google’s search algorithm changes and a broader sell-off in the technology sector.
Reddit Inc. (NYSE:RDDT) shares saw a modest recovery after a Loop Capital analyst deemed it highly attractive following the sharp decline. The analyst reiterated a Buy rating with a $210 price target, expecting ARPU growth to be driven by improved ad tools, potential product-matching features similar to Meta’s Advantage+, expanded advertising opportunities—including a higher ad load on comment pages and possible search ads—and stronger auction dynamics as more advertisers join the platform. The analyst projects 36% revenue growth and 87% EBITDA growth for the year.
