Are we in another 1990s tech bubble?

Are we in another 1990s tech bubble?

A quick look at the valuations of the so called FAANMG group of stocks – Facebook, Apple, Amazon, Netflix, Microsoft and Google – and it certainly feels like it we’re in a tech stocks bubble a-la the late 1990s.

However, if we compare valuations of this group to historical valuations during the major global asset bubbles over the last 40 years, it’s possible FAANMG and tech generally might not be as overvalued they might seem.

The average price/earnings multiple of this group might be high at around 40-times, but this level is not overly onerous for a group of technology stocks, says Dr Shane Oliver, AMP Capital’s Head of Investment Strategy and Chief Economist.





“Yes, you’ve seen a rise in these stocks and that is a concern; at some point tech stocks will take a back seat as the US starts to withdraw from Quantitative Easing and focus on Quantitative Tightening and we will start to see cyclical stocks like materials performing better,” Oliver says.

But does that mean we’re going to see another tech-stock crash?

“I’d have to say at this point, probably not,” Oliver says

“Bear in mind these companies are earning profits whereas they weren’t in the late 1990s,” Oliver points out.

There’s no doubt, though, quantitative easing and accommodative monetary policy has been good for the stock prices of technology companies in the United States, pushing valuations up to eye-watering PE multiples in some cases.

The tech bubble in the late 1990s ended in a dramatic 80 per cent fall in the NASDAQ high tech index in the US in early 2000. Valuations of listed technology companies.


AMP Capital Insights papers

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

Original Source AMP Capital published on 20 March 2018

Explore financialpartnersblog