The modern day juggernauts of the technology space have been unstoppable recently, and that has many investing historians and purists worried.
Most investors are familiar with the tech and telecom crash that began in 2000 and totally collapsed in 2001. Ironically, many of the second-tier tech names driving the current sector rally were the key players back then as well.
So are we setup to experience a similar crash? No. Let me tell you why.
I’ll be the first to acknowledge the fact that market crashes are inevitable. They’re simply a part of investing. Picking a top is a fool’s errand, however, especially when you could ride the wave higher.
A better comparison to the current tech rally is the run of the so-called Nifty 50 — a group of the 50 most popular large-cap stocks in the 1960s and 1970s. These names, which included stocks like McDonald’s Corporation (NYSE:MCD), International Business Machines Corp. (NYSE:IBM), The Coca-Cola Co (NYSE:KO), Johnson & Johnson (NYSE:JNJ), Texas Instruments Incorporated (NASDAQ:TXN), Walt Disney Co (NYSE:DIS), Wal-Mart Stores Inc (NYSE:WMT), Xerox Corp (NYSE:XRX), Eastman Kodak Company Common New (NYSE:KODK), Avon Products, Inc. (NYSE:AVP) and Polaroid, were considered buy-and-hold slam dunks, and were found in accounts earmarked for widows and orphans.
The investment proposition was clear: these were giant, dominant companies without peers or competition. Before tripping into a two-year slump that began in 1973, the Nifty 50 changed hands at price-earnings ratios between 46 and 90.
Today, those companies driving the market as a whole higher are Facebook Inc (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) — and they’re what I like to call the technology juggernauts. These giant conglomerates have their tentacles in everything from consumer products to financial services to travel and more. And the key is that their only competition is with each other.
The tech juggernauts aren’t really judged on their P/E ratios — although it is worth noting that they’re down significantly from the nosebleed levels of the crash. Instead, investors give the benefit of the doubt on things like barrier to entry, market share gains and massive revenue growth.
Just consider Amazon’s first-quarter revenue growth through the years:
- 1997: $16 million
- 2007: $3 billion (+18,650%)
- 2017: $35.7 billion (+1,090%)
Of course, these stocks have stumbled from their fair share of earnings misses, broad market corrections and periodic short raids, but here they stand living up to the hype and creating even more hype.
Just as great empires come to an end, eventually, too, will the current tech run led by the four horsemen. But for now, if this is the new Nifty 50, I would say it’s not even 1970 yet.
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