Tech Bubble Fears Could Be Unfounded Investors are in a state of fear, wondering whether a tech bubble burst of the kind experienced in 2000 is on its way. TradeZero Ocean Place Cable Beach, Unit #1 Nassau, Bahamas
In investing and stock trading, there are fears that sometimes takeover and influence decisions. But fears can sometimes be unfounded. To find out if the widespread fears are true, you need some objective technical analysis. Is the perceived tech bubble likely to burst? According to analyst Michael Kramer, that could be an unfounded fear. There is reason for investors to have this fear though. Their memory goes back to year 2000, 17 years back. That was the famous tech bubble. Many tech stocks soared and then crashed into the depths of a bear market. Investors feel there is a bigger tech bubble forming now. So could it get to the point of bursting again? Is this fear genuine? Checking Out If a Bubble Is Really There The question is, is there really a bubble? The tech companies of today, Microsoft ($MSFT), Qualcomm ($QCOM), Cisco ($CSCO), Apple ($AAPL), Intel ($INTC), Alphabet ($GOOGL) and Amazon ($AMZN) are different from the tech companies that were part of the bubble in 2000 – Microsoft, Intel, Qualcomm, Cisco and others that aren’t existing or at least not in the same form. To keep away from bubbles you need to www.tradezero.co
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realize when they are about to strike. Back in the 1990s the Nasdaq Composite was an index that was highly overvalued, and that is something investors now seem to be overlooking. Things are hardly that way now. Hard Data Reveals Things Were Different 18 Years Back As per data from the Wall Street Journal, at $606 billion, Microsoft had the largest market cap of the Nasdaq Composite in 1999. On December 31, 1999 Microsoft traded at almost 73.5 times earnings with total revenue amounting to $19.7 billion which is 30 times sales, as per data from this source. In the current scenario Apple is the one having the largest market cap, amounting to $820 billion. It now trades at 18 times trailing earnings with revenue of $45.4 billion in just its third quarter. That’s a big difference. In 1999 these were the 10 largest tech companies that were represented on the Nasdaq composite: ❖ Microsoft ❖ Cisco ❖ Qualcomm
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❖ Intel ❖ Worldcom ❖ Oracle ❖ Dell ❖ Sun Microsystems ❖ Yahoo ❖ JDS Uniphase Contrasting Then and Now Among these companies only five are currently in the form they were back then. And only three of these, Intel, Microsoft and Cisco, are in the top 10. Contrasting how it was then with how it is now, Cisco was trading at 198 times earnings while 18 years later it is trading at 17. Intel was trading at 38 times earnings but trades now at 14 times earnings. Qualcomm isn’t in the top 10 and trades at 20 times earnings, but back then it was trading at a massive 400 times earnings. Alphabet, Facebook and Amazon taste grand success now but valuations have changed significantly since 1999, making Kramer believe it isn’t quite the right thing to compare the success enjoyed by these tech majors now to 1999’s bubble www.tradezero.co
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stocks. Of these, Facebook and Alphabet are currently trading at 35 times and 33 times earnings respectively. Amazon is a unique company in that it seems to be able to pick the time when it wants to strike a profit, as this report indicates. It trades currently at 247 times trailing earnings, but it also generated revenue worth $75 billion in the first half of 2017 itself. On the other hand, Qualcomm only generated annual revenue of $3.9 billion back in 1999 while trading at 400 times earnings. As you can see, the situation is different now. No Tech Bubble Likely With objective analysis, Kramer points out that there aren’t visible indications of a tech bubble. Comparing current tech stock valuations to those of 1999 wouldn’t give the true picture. So the worries of investors are unlikely to transform to reality as of now, unless the international political situation takes a turn for the worse or some natural calamity strikes.
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