(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of GOOGL.)

It has been 17 years since the famous tech bubble of 2000, when a long list of internet-related stocks peaked and then crashed into a bear market. Many investors are worried that a new, much bigger tech bubble has formed in 2017 and will burst again with the same consequences. But the Microsoft Corp. (MSFT), Cisco Systems Inc. (CSCO), Intel Corp. (INTC) and Qualcomm Inc. (QCOM) of 2000 are very different from the Apple Inc. (AAPL), Microsoft, Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOGL) of today. 

The problems with bubbles are knowing when they are about to burst. But first, you need to have a bubble for it to pop. The Nasdaq Composite was the poster-child of an overvalued index in the late 1990s. Using its top 10 components of then, and now, we see that we are nowhere near levels once seen.

Selective Memories

Investors have memories that are fickle at best, as they seem to remember what they want to. But then again, not many investors remember the late 1990s because they were probably in grade school.

In 1999, Microsoft had the Nasdaq Composite's largest market cap at $606 billion, according to data from the Wall Street Journal originally published by the Nasdaq. Meanwhile, using data from YCharts, Microsoft traded at nearly 73.5 times earnings on December 31, 1999, while having total revenue of $19.7 billion, or 30 times sales. 

Today, Apple has the largest market cap on the Nasdaq Composite, at $820 billion, and trades at 18 times trailing earnings, while posting revenue of $45.4 billion in its third quarter alone – a noticeable difference. 

MSFT Market Cap Chart

MSFT Market Cap data by YCharts

Only 3 Remain In Nasdaq Composite Top 10

According to the Wall Street Journal/Nasdaq article, on December 31, 1999, the 10 largest companies on the Nasdaq composite were Microsoft, Cisco, Qualcomm, Intel, Worldcom, Oracle, Dell Computer, Sun Microsystems, Yahoo! and JDS Uniphase. Today, only five of those companies remain in their previous form, while Microsoft, Intel, and Cisco are the only ones that are still present in the top 10.

What Bubble Valuations Look Like

On December 31, 1999, Cisco traded at 198 times earnings; today, it is at 17. Intel in 1999 traded at a reasonable 38 times earnings. Today, it trades at 14.

Qualcomm – which is not in the top 10 today – traded at 400 times earnings back then. Today, it trades at 20 times. The valuations have come a long way since 1999, and it seems unfair to compare the mega-success of Amazon, Facebook, and Alphabet to the bubble stocks of 1999.

Facebook trades at 36 times trailing earnings, while Alphabet trades at 33 times. Amazon trades at 247 times trailing earnings, but this is a company that picks and chooses when it wants to make a profit. (See more: Why Amazon's Shares Could Rise 12% to $1,100.)

Amazon had no problem generating $75 billion in revenue for the first six months of 2017. In contrast, Qualcomm generated total annual revenue of only $3.9 billion in 1999.

MSFT PE Ratio (TTM) Chart

MSFT PE Ratio (TTM) data by YCharts

Where Is The Bubble?

The signs of a tech bubble among the largest companies seem nowhere to be found, and certainly nowhere near levels once seen. If anything, it is an insult to compare today's technology valuations to their predecessors. But then again, in 1999 everyone thought Worldcom, Sun Microsystems, Yahoo!, JDS Uniphase, and Dell would be around forever. And except for Dell (which is now private), the other four are long gone and forgotten. 

Barring a geopolitical escalation with a nuclear power, or some unforeseen natural or man-made disaster, the technology market meltdown is likely not coming anytime soon. 


Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

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