But they should also cash out ASAP, because that kind of momentum cannot last.
Those who have been around since before the dot-com crash should see the writing on the wall right now in regards to tech stocks — the narratives are eerily similar.
Internet companies without meaningful revenue — like Pinterest — are touted as tremendous opportunities and valued as multi-billion-dollar companies. Dealmaking is also red hot right now. Whether it’s cash-rich companies like Yahoo (YHOO) chasing social media and mobile acquisitions left and right, or a number of tech IPOs exploding out of the gate lately there is a race to be “in on the ground floor.”
Obvious barriers to success are simply overlooked. In the case of Netflix, nobody cares about the continuous cash bleed overseas or the threat of competition and bandwidth issues for high-speed internet at home. In the case of Tesla (TSLA), the value implies that the stock will flawlessly execute its strategy and that the market will fully embrace it for years to come.
This is not to say that some tech stocks are not fairly valued, or that some companies don’t have a very real path for success in 2014. But be very careful painting the tech sector with a wide brush — particularly stocks with nosebleed P/Es that have already doubled or tripled in the last 12 months.