Chart of the week: Dotcoms come of age

Fifteen years ago, the Nasdaq eclipsed 5,000 before the dotcom bubble burst. But the index’s latest foray above this milestone should be more sustainable.

735-nasdaq

Fifteen years ago this month, the Nasdaq eclipsed 5,000 after almost tripling in two years. It then promptly collapsed as the dotcom bubble inevitably burst. But the index's latest foray above this milestone should be more sustainable.

As Lukas Daalder of Robeco Investment Solutions puts it, the index "is no longer an overpriced playground for newcomers, but has matured into something more stable".

It is no longer so technology-heavy, with the sector now comprising 40% of the index, rather than 60%, and the average Nasdaq company now survives for 25 years as opposed to 15. But most importantly, Nasdaq-listed firms generate far more earnings the top ten are almost five times more profitable than in 1999 and no longer cost the Earth, even if they aren't exactly cheap.

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The index is on a trailing (historic) price/earnings ratio of 32, a shade above the average for the past 20 years. That's down from an insane 175 in March 2000.

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.