The stock market is setting new records, with some tech companies at “the steepest premium ever versus cheap shares,” reports Bloomberg. (Even Tesla “is trading at more than 800-times earnings while an electric-truck peer, which made just $36,000 last quarter by installing solar panels for its founder, is valued at $16 billion.”)
So is it like the great dot-com bubble of the late 1990s, they asked Ryan Jacob, founder of a tech-focused asset management firm. “The only people who say, ‘Yes, it’s like the 1990s’ are hedge-fund managers who are net short and annoyed,” he responds. “To say it’s like the late 1990s — they have no idea.”
The global head of equities at JPMorgan Asset Management has been with the firm since 1992, and recalls the dot-com era as a period when investors bet on hoped-for earnings, in contrast to the current environment. “Today, at least for the big companies, the long-term profits have arrived,” said New York-based Quinsee. “I would be surprised if there was a similarly spectacular decline. But the market’s leadership could change.”
The market of 2020 is a very different place than it was two decades ago. The number of domestic U.S. stocks has nearly halved from its 1998 peak to about 3,700 today, with much of the decline driven by disappearing micro-caps… At the height of the dot-com bubble, the median age of a firm going public was five years-old. It’s been double that for most of the past decade, according to data compiled by Jay Ritter at the University of Florida. That suggests the kind of fledgling tech companies that imploded in the dot-com era now tend to stay private for longer, and the ones that do go public are usually more mature… As the modern equivalent of dot-coms learned to stay private, growth stocks in the market began to look very different. The Russell 3000 Growth Index currently has a net debt to earnings ratio of just slightly above 1. It was about 2.3 at the end of 1999. And back then, debt was a bigger burden. Around the time firms found themselves hurriedly removing “dot-com” from their names, the Federal Reserve was raising rates. Now, borrowing costs are nearly zero and look likely to stay there for a while…
Cheaper debt and less of it, healthy profits, and a virus-based boost to business. But not everything is different about technology shares in 2020. Predicting the outlook for companies when traditional valuation models do not necessarily apply was a huge challenge during the dot-com bubble, and remains so today… But Jacob can’t help feeling his job has become just a little duller. “As a public company investor in today’s environment, it’s a bit frustrating,” he said. “You’re not going to replicate what happened in the late 1990s, it was basically the dawning of the Internet.”
Read more of this story at Slashdot.