Before moving on to explaining why there is currently no bubble in the technology shares, it is essential to firstly understand what does the notion of “tech bubble” refers to. In a nutshell, this term refers to the unsustainable market rise that is often characterized by a fast and steady growth in the price of the shares, depending on variables such as the price per sales ratio or the price per earnings ratio. Some industries, such as the Internet software field for instance, are more likely to experience a technology bubble than others, and it is not uncommon for the investor demand to sky-rocket when that happens.
Given the fact that the technology bubble presents itself as a great opportunity not only for investors but also for regular individuals to actually invest their money in a certain market, they start to purchase stocks at prices that they would consider unacceptable outside of the technology bubble.
On the other hand, one of the biggest disadvantages of these sudden technology bubbles is that they often crash as fast and as unpredictably as they have emerged – when that happens, the share price comes back to normal and investors no longer put pressure on the share sales. The biggest technology bubble in history took place toward the end of the 1990s and ended all of a sudden in 2000-2001 – as a matter of fact, this abrupt fall has lead to a recession back in 2001, which means that the recession can be one of the dramatic and certainly undesirable side effects of the technology bubble mentioned above.
Is There Any Technology Bubble At The Moment?
While it is true that some companies and technologies have recorded an increase in their shares and many of those who owned shares were happy to make a significant profit, this does not mean that we are currently going through a technology bubble. As a matter of fact, it was not uncommon for some tech stocks to reach unexplainable valuations within a very short time frame, which has determined a great deal of people to invest their money in them – even so, this only means that those particular tech stocks were only great at that moment.
For instance, there are several companies that design and sell products and services that are very sought-after nowadays, such as LED lighting systems or electric cars, for instance. One particular electric car manufacturer has recorded a five time increase in the price of its shares, thus boosting the market capitalization even though it would only manufacturer a fraction of the number of cars a world-renowned car manufacturer would normally deliver within the same time frame. The golden rule here is very simple: in order for a company to record an increase in the share price, it is essential for it to come up with a popular, useful and desirable product that makes money.
Some Stocks Truly Are On The Rise
Although there is no technology bubble in general terms, there are some tech stocks that can truly be considered bubbles and they attract investors on a constant basis. In spite of the fact that some technology areas are overvalued and some businesses and stocks are truly worth investing your money in, there is absolutely no comparison to the technology bubble that appeared during the late 1990s. One thing is for sure, though: investors should pay attention to several important factors before starting to invest their hard-worked money into stocks of any kind. The profits recorded by the company in question or the different measures of valuation (such as the cash flow, the sales or the profits) are only two of the indicators that should not be neglected. Also, the number one rule of investment applies here as well: one must never invest more cash than they can afford to lose, in case something goes wrong.
As the years passed, investors, analysts and other professionals who specialize in technology bubbles have come up with a variety of different evaluation methods that would allow them to evaluate the overall performance of a stock and determine whether or not there is a tech bubble involved. Some have gone so far that they have even included the page view statistics into their evaluations.
What Happened In The 1990s Stays In The 1990s
It is certainly not impossible for us to experience the technology bubble we saw back in 1999, maybe even in the near future – nonetheless, this is far from being something we see in our day-to-day lives, therefore investors should not get excited with every increased share price they see. Technology has evolved as well, and companies that operate in this industry have evolved along with them because they had to adapt in order to accommodate the needs and requirements of the common user.
What used to be nothing more than a far-fetched dream back in the 1990s has now become part of our everyday lives. Actually, some of the world’s most thriving corporations and organizations are actually driven by the network and by people’s constant need of being informed and up to date – this is exactly what has lead to the development of top-notch tablets, smart phones, laptops and what not. Most of these businesses are directly connected to the Internet’s rise in fame, therefore it is safe to say that a major discovery such as the Internet can lead to a technology bubble in a field that depends on it.
Perhaps the most notable example of a business whose success has sky-rocketed due to the Internet is Facebook. Facebook, along with Twitter, are the world’s most popular social networking websites and they are designed to fulfill one of people’s biggest needs – the need to stay informed and to connect with their loved ones. Social media has a market value of billions of dollars, and the chances are that it will increase even more in the future. At the same time, the number of tech floatation’s also varies dramatically: at the time being, there are 10 times less technology floatation’s today as they were during the technology bubble back in 1999, therefore we are certainly not experiencing a tech bubble at the moment.