Tech bubble talk proves wide of the mark

Technology stock valuations got frothy before last year’s sell-off, but comparisons with the bursting of the dotcom bubble in March 2000 have proved wide of the mark.

Creative Planning strategist Charlie Bilello notes an exchange-traded fund (ETF) tracking the US technology sector is now back at all-time highs. Last year’s bear market – the sector fell 34 per cent – was unnerving, but it only took 16 months to recover those losses.

Contrast that with the dotcom bust, when the tech sector fell 82 per cent and had to wait almost 17 years before hitting new highs.

Currently, there’s renewed chatter about bubbly tech valuations, given that trillion-dollar stock Nvidia is trading on what Bespoke Investment describes as a “preposterous” 42 times sales – even higher than the “crazy” price-sales ratio (34) at its prior peak.

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[ Nvidia hits $1tn market cap as chipmaker rides AI wave ]

[ Does Nvidia's heady valuation actually matter? ]

Like Nvidia, other mega-cap tech stocks – Apple, Microsoft, Alphabet, Amazon, Meta, Tesla and Netflix – have soared this year, with gains ranging from 40 to 130 per cent. However, Bespoke notes that unlike Nvidia, all of these stocks have price/sales ratios that are well below prior highs.

That doesn’t mean they’re cheap – Tesla looks especially expensive – but talk of another tech bubble is overstated.