If you read the financial press, you would’ve noticed talk of overvaluation in tech industry for a while - lately prominent investors’ been coming out and speaking about it. Mark cuban recently on his blog, Marc Andreessen, a PwC report on similarities b/w now and 2000, etc…
Just wanted to gauge your thoughts - baseless speculation or reasonable estimation? Lets quantify this, what odds you’d give to trade…?
PS: Idea is not to go about supporting Apple as a company, etc but to more generally discuss the sector.
We’re in a risk asset bubble. Tech, in general, is one of the most speculative sectors. I would argue that the biotech sector is much more overvalued than tech right now. It’s literally overflowing with garbage. But they are both a function of the same issue: Interest Rates Are Too Damn Low. When rates go up and risk is back on you are going to see a lot of people lose money. And I mean a lot of people. And a lot of money. It could take a few years to play out but the #YOLO trade of investing in absolute garbage without regard to consequences will come to an end. Today’s biotech market is conceptually pretty similar to the 1980s biotech market that resulted in untold losses. It would be difficult to run this study, but I often wonder how many billions of dollars have been lit on fire by public companies claiming they will cure cancer and AIDS. No dice.
^I hear you but everyone agrees about this qualitatively, I’m keen on seeing what odds AF’ers give a bubble. whether it’s in biotech or tech in general…
Without numbers I’d say they’re just a bunch of words
The market might be overvalued today but valuations are nothing close to 1999. Forward P/E in 1999 was 100x.
People often like to use comparisons but 1999 isn’t a good one. It’s inflated today for sure, but no one is making a 100% return in 24 hours closing their eyes and randomly picking a stock.
^ Disagree with you FT. The small cap space, especially in tech and biotech is absolutely full of companies that will not ever make a dollar of profit. I agree as a whole the market isn’t as frothy as 2000, but elements of it are perhaps worse. If I could buy into Bro’s fund, I would. Its exactly the strategy I’d use if I had the time to do the legwork.
the valuations in tech are like a barbell. the dino tech firms (ORCL, MSFT, INTC, CSCO, AAPL) all trade at somewhat reasonable valuations while new tech (TWTR, CRM, DATA, SPLK, AVGO, TSLA, SCTY, BABA, LNKD, NFLX, GRPN, GRUB, Z, YELP, DDD) all trade at dot-com levels (i.e. no earnings and require massive capital injections or employees be paid in stock to sustain). when the spec cash goes away, i’d expect almost all companies that aren’t dino companies to go down or be eaten up if they actually do something of value. someone out there please tell me how in the world CRM is not profitable yet? i mean, why grow so fast if it means you lose a quarter billion every year?
the only reason i excluded it is because it makes some money. my argument excludes those new tech stocks that are overvalued but likely worth something. FB doesn’t rely on outside funding just to stay solvent. most of the ones i’ve identified above do. the list is much much longer if you include companies that make money and don’t rely on outside funding but trade at 50x+ earnings.
