Tech bubble

Investing and Markets šŸ“ˆ
1

Iā€™m going to keep this short and simpleā€¦ do you think the current US tech stocks are in a bubble??if so do you see a crash within the next 5 years??

  • Yes
  • No

0 voters

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2

Really interesting! Iā€™m surprised that such a high proportion of people think theyā€™re in a bubble. Iā€™d be curious to hear:

  • are there particular tech companies that people think are overvalued?
  • are there any that are undervalued right now?
  • who do you think has the best chance of surviving a crash?

For me itā€™s -

  1. Facebook because theyā€™re facing some strong headwinds from regulators worrying about privacy & teens seem to be using them less & less. Yes they have Instagram & WhatsApp but the design of those services limits their ability to add features to a certain extent, which means fewer opportunities to advertise. (Weā€™ve discussed them some more before here).
  2. Square because as Iā€™ve mentioned, theyā€™re just getting started.
  3. Amazon because theyā€™re eating the world, becoming increasingly diversified.
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3

Tech stocks (aapl,goog,amzn) no - they have solid fundamentals.

Social stocks like snapchat, facebook, twitter and other frothy tech stocks like blockchains maybe, but there isnā€™t the hysteria you see in a true bubble (most recent one was bitcoin), so Iā€™d still say not a bubble, perhaps overvalued.

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4

Tech stocks is too much of a catch all phrase in my opinion, they all work in different sectors. I think some certainly are (Snap is a prime example, as is Spotify, and I would argue Amazon is far far too expensive regardless of its growth).

I think the likes of Apple, Google, Microsoft arenā€™t over valued. I think Netflix and Amazon (hoping!!) will experience some kind of correction but theyā€™re fundamentally very good businesses. Facebook is interesting - if they were forced to split the value of Facebook, Instagram, and WhatsApp would be worth more independently than they are under the one group, so I would say it isnā€™t overvalued?

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5

Also really interesting is the cash and near-cash (including corporate bonds) that these companies have on hand - Apple has c.$300 billion dollars, they could literally buy Netflix in cash and still have billions left on their balance sheet. Facebook and Alphabet have billions also.

(Does that mean Apple canā€™t fundamentally be valued below $300 billion by the way? I assume so.)

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6

Sooner or later, the correction will absolutely happen due to market cyclicality.

I personally do not think Amazon will suffer too much, even if it will be a financial crisis. After all, it has established itself as an equivalent of McDonalds (MCD) for consumer goods - cheap, varied and easily obtainable. How did MCD do during the 2008 crisis? Exceptionally well, as it was a cheap source of food, an ā€œinferior goodā€ which people will always use if their finances are low. I do not see any other alternative to Amazon in their sector (please do not say Walmart), hence would not think they are as exposed to corrections/crises as Apple or Tesla - those two may suffer a lot due to the luxurious nature of their offering - something that people will not need if the worst happens.

It would be rational to value the company at least by their net cash reserves. However, according to NASDAQ, Apple has $20bn in cash and $250bn invested. As we do not know what the nature of their investment is, we cannot assume that they are liquid enough to cover $241bn of liabilities: imagine they have invested in :freetrade: in the latest round - no chance they can cash out tomorrow and pay their debts!

They, of course, have other current and fixed assets but whilst liabilities will have to be repaid dollar to dollar, assetsā€™ value is nominal and does not mean they are liquid enough to be sold to cover the liabilities if needed.

What also concerns me about Apple long-term is that their EBIT profit margin and ROA are historically the lowest and even worse than in 2008.

That said, their P/E is miraculously low and other fundamentals seem to be very good. The only questions is whether it can be sustained with lowering profit margins and growing competition.

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$1000 invested in the S&P 500 at the trough in March 2009 would now be worth $4200.
The return from some tech stocks in comparison to this benchmark is staggering:

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8

The majority of Appleā€™s investments are in corporate bonds and other highly liquid assets, which they are now starting to sell down and bring to the US. Does that Nasdaq link include their offshore registered assets, or only their registered onshore cash and others?

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9

Great articles, I have not come across those before.

Interestingly, according the the second one, Apple will be better off by getting bonds back rather than sell and bring cash - bonds are taxed at 8%, whereas cash at 15.5%. And then sell bonds in the US if that is theoretically possible to execute :slightly_smiling_face:

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