When Will the Tech Bubble Burst?

The profitless start-ups that were wiped out in the dot-com crash have consolidated into an oligopoly composed of leading survivors such as Google and Apple. These are giants with real earnings, yet signs of a irrational euphoria are growing.

.. One is pitchmen bundling investments with very different outlooks into a single package. Last decade they bundled Brazil, Russia, India and China to sell as the BRICs. More recently they packaged Facebook, Amazon, Netflix and Google as FANG, then, as names and prospects shifted, subbed in Alphabet, Apple and Microsoft to make Faama. Others are hyping the hottest tech companies in China as BAT, for Baidu, Alibaba and Tencent. Whatever the mix, acronym mania is usually a sign of bubbly thinking.

.. Seven of the world’s 10 most valuable companies are in the tech sector, matching the late 1999 peak.

.. The dot-com era saw the rise of big companies that were building the nuts and bolts of the internet — including Dell, Microsoft, Cisco and Intel — and of start-ups that promised to tap its revolutionary potential. The current boom lacks a popular name because the innovations — from the internet of things to artificial intelligence and machine learning — are sprawling and hard to label. If there is a single thread, it is the expanding capacity to harness data, which the Alibaba founder, Jack Ma, calls the “electricity of the 21st century.”

.. the scale of today’s tech boom is not readily visible because much of the investment action has moved into the hands of big private players. In 1999, nearly 550 start-ups went public, and after many ended in disaster, the government tightened regulation of public companies. In part to avoid that red tape, this year only 11 tech companies have gone public. Many are raising money instead from venture capitalists or private equity funds. Venture capitalists have poured more than $60 billion into the technology sector every year for the past three years

.. “unicorns,” companies that haven’t gone public but are valued at $1 billion or more. Unicorns barely existed in 1999. Now there are more than 260 worldwide

.. We can never know when the end will come. Still, there are three critical signals to watch for.

  1. The first is regulation. The tech giants are seen today as monopolizing internet search and commerce, and they are angling to take over industries such as publishing and automobiles, raising alarms at antitrust agencies in Europe and the United States
  2. ..  Going back to the “nifty 50” stocks of the 1960s, nearly every big market mania ended after central banks tightened monetary policy and many people who had borrowed to get in the game found themselves in trouble. The dot-com bubble peaked in 2000, after the Federal Reserve had increased interest rates multiple times.
  3. .. Finally, watch for tech earnings to start falling short of analyst forecasts. The dot-com boom was driven in part by increasingly optimistic predictions for technology company earnings