According to @QCompounding, Nvidia (NVDA) is an AI leader but currently trades at a price-to-earnings multiple of about 68x, highlighting a rich valuation level for traders to monitor, source: X post by @QCompounding on Sep 8, 2025. A 68x P/E translates into an approximate earnings yield of 1.47 percent using the standard inverse P/E relationship, signaling that the market prices growth aggressively, source: Earnings Yield Definition and P/E Ratio overview, Investopedia. High P/E equities are more sensitive to earnings revisions and discount-rate shifts, which can amplify volatility around results and macro data, source: Price-to-Earnings Ratio (P/E Ratio) explanation, Investopedia. For crypto, risk sentiment spillovers matter because Bitcoin (BTC) has shown increased correlation with U.S. tech equities since 2020–2022, so shifts in mega-cap AI equity sentiment can influence crypto beta, source: IMF blog 2022 "Crypto Prices Move More in Sync With Tech Stocks".

According to Compounding Quality on Twitter, Joel Greenblatt emphasizes that even outstanding businesses can become poor investments if purchased at excessive valuations. To address this, Greenblatt introduced a second filter—Earnings Yield, which measures profits relative to price (Source: @QCompounding, May 22, 2025). For traders, utilizing Earnings Yield helps identify undervalued stocks, improving entry points and risk management. This disciplined approach can also affect crypto market sentiment, as investors seeking value may shift capital between equities and digital assets when traditional markets appear overvalued.

According to @mjmauboussin, the Magic Formula investing strategy focuses on selecting stocks with high Return on Capital and strong Earnings Yield, providing a systematic approach to identify quality and undervalued companies. Traders can apply this by ranking all companies on these metrics, buying the top 20–30, and rebalancing annually. This quantitative method is increasingly relevant to crypto traders seeking diversified exposure or adapting similar ranking models to digital assets, which may enhance portfolio performance in volatile markets (source: @mjmauboussin, Magic Formula Investing).