It’s time to kick off another round of worrying about the tech bubble.
According to the New York Times, there was a “sense of foreboding” hanging over a panel discussion about venture capital at Harvard Business School on Sunday.
Adam Valkin at General Catalyst warned, “My own view is we still have one, two or three very good years ahead. But then we should be cautious, because there’s no example in history where the cycle doesn’t come to an end and drag us through a very painful period.”
Hmm. That sounds familiar….
2009: Actually, there were no warnings of a tech bubble that we could find in 2009. That's because another bubble -- the housing bubble -- popped in late 2008, tanking the entire economy. Tech stocks, like almost every other asset, looked relatively cheap then.
2008: There wasn't much talk of a general tech bubble in 2008 either, but there were lots of questions about whether social media companies like LinkedIn at $1 billion and Facebook at $15 billion were overvalued. Based on today's public valuations, they weren't.
So really are we in a bubble?
Who knows? Some tech companies may be overvalued. Some may be undervalued. The only way to know for sure is to know what their future earnings are, and that's pure guesswork.
So why is everybody so convinced that there's a tech bubble, year after year after year?
There may be a bunch of reasons.
- The popping of the dot-com bubble in 2000 and 2001 hurt a lot of investors, including mum-and-pop investors who thought they should play the stock market, and those bad memories fade slowly.
- Tech companies often don't produce anything tangible that you can hold -- no matter how many ads Google or Facebook sell, those businesses may not feel 'real' to investors who are used to counting aeroplanes or cars rolling off an assembly line.
- Certain types of businesses, like Amazon and software-as-a-service companies like Salesforce, invest nearly all their income back into their companies, so traditional measures of value like price-to-earnings don't really work.
- Tech can disrupt established businesses very quickly -- look at Blockbuster video, or the taxi industry today -- which makes people uncomfortable.
But really, it doesn't do any harm to predict doom and gloom -- people will forget you were wrong, and one of these years the doomsayers will be right.
Who knows, it may even be this year.