Tech stocks will face a backlash

published 28 February 2020

Is this dotcom bubble 2.0? asks Robin Pagnamenta in The Daily Telegraph. Almost 20 years after the dotcom crash tech stocks have once again reached dizzying heights. Apple and Microsoft are now worth a combined $2.8trn. That is more than Great Britain’s entire annual GDP. Yet where the dotcom bubble was marked by the overvaluation of “flimsy” start-ups, today’s tech giants are “mature companies which earn real money”.

Just five stocks – Facebook, Apple, Amazon, Microsoft and Google-owner Alphabet – account for nearly a fifth of the S&P 500’s total market value, notes Akane Otani in The Wall Street Journal. That is the highest level since the dotcom bubble peaked. Yet today’s valuations are far less stretched: the five leading lights of the dotcom boom traded on 47 times expected earnings, against 30 today. The tech firms also enjoy much more resilient earnings this time.

In 2018 it was fashionable to talk of a coming “techlash” against Silicon Valley from consumers and regulators, says The Economist. Yet what followed was a “jaw-dropping bull run”: shares in the five biggest US tech firms are up 52% over the past 12 months. Yet perhaps more disturbing than talk of a new bubble is the possibility that we are not in a bubble and that the tech giants really are destined to disrupt and control ever more sectors of the economy. The bigger they grow, the bigger the risk of an almighty political backlash.