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A repeat of the dotcom bubble?
Thu, 24 Feb Pre-Open

Agri-commodities, precious metals and crude oil. What is common between the three? Among other things, all three are vying to be asset class of choice for investors across the globe.

There are chances that few years down the line people would think of these assets as another bubbles gone bad. Just as people now recollect the housing bubble that went bust in the US in the 2007-08 period. Or to give another example, the dot com bubble that burst at the start of the previous decade.

The human mind is indeed a profit seeking one. It tends to focus more on current asset classes that are hot rather than reminisce about the ones that have already passed us. This is precisely the reason why very few people talk about the housing bubble or the dot com bubble at the current point in time.

Little wonder, an important land mark event concerning the NASDAQ, the birth place of the dot com bubble passed us by without so much of a flutter.

Interestingly, last Friday marked the day when the tech laden index NASDAQ closed within 25 points of its highest level in a decade. It would have certainly brought back memories for investors who would have witnessed the bursting of the dotcom bubble firsthand. They would have thought of the time when tech stocks were selling like hot cakes. Ironically, as Moneynews puts it, tech is hot yet again.

Apple is creating ripples with its products. Microsoft is still the eternal monopolist. Whereas Google and Facebook have come like a breath of fresh air. In view of all this, is the new found interest in NASDAQ for real this time around? We think so.

As per a fund manager, it is night and day compared to 10 years ago. These business models are real. Revenues are real and the cash flows are also real.

Indeed. A mere glance at the cash flow generating ability of giants like Apple and Microsoft and one can come to the conclusion that these business models are certainly real and here to stay for some time to come. Besides, even the valuations aren’t as out of whack as they were 10 years ago. Infact, they could well be termed as pretty reasonable. Sample this. In December 1999, NASDAQ companies were earning close to US$ 40 per share cumulatively and were priced at a whopping 103 times their earnings. In contrast, most recent earnings per share stood at around US$ 130, priced at a pretty acceptable 22 times earnings.

Furthermore, the future also looks bright for some of the world beating NASDAQ companies. Most of these earn a substantial part of their revenues outside of the US and hence, stand a much better chance of riding out the slowdown in US economy, if any. Besides, their enormous war chest also gives them sufficient staying power and also the ability to continuously innovate and grow their revenues.

Thus, from the evidence at hand, it does look like the repeat of the dot-com bubble in the very same asset class could well be avoided this time around.

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May 14, 2021 03:37 PM