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Comment by s17n | Hacker News Reader

"Tech"* as a percentage of the economy has grown substantially since 1999 so what was a crazy percentage then might not be now.

* A lot of so called tech stocks are companies that aren't all that technology-driven, of course.

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The reason people are concerned about a bubble is because the valuations of these companies are hard to reconcile with any real-world increase in value creation. The price of many the FAANG stocks has gone up a huge amount relative to their increase in revenue.

But they have gone up proportionately to changes in the risk free rate, which is now at 0%, and expected to be about ~1% over the next 30 years (see: 30yr bond yields).

In 2019, Apple paid ~1.7% in dividend yield when 10YR treasuries were paying ~1.7%.

In 2020, Apple now pays ~0.77% in dividend yield, and 10YR treasuries pay ~0.7%.

Do you see a pattern? :)

It's absolutely possible for the fair value of a stock to double: you just need lower interest rates.

The problem is tech companies aren't immutable to the laws of finance and human folly. Not every EV truck startup is going to become the next Tesla... yet people behave as though this is the case.

I'm not sure Tesla is going to become the next Tesla.

Tesla itself is priced just now as if it is the next tesla.

Looking at you, Nikola

To me those are the real signs of a bubble: NKLA's share price continuing to grow with a total lack of evidence the company is anything besides a complete fraud, or also ZOOM's share price spiking because people confused it with ZM (the actual ticker symbol for the video communication company).

If those aren't signs of a deeply irrational market, I don't know what are.

A lot of it will be FOMO.

Noone wants to miss out on the next Amazon because people are greedy.

No mention of peloton? The big problem is the umbrella of “tech stocks” includes an increasingly diverse set of companies that have little in common. FANGs are an example. Movies, advertising, consumer electronics, online retail, but we talk of “tech” stocks being too high or low as a group. Microsoft is not peloton. Amazon is not zoom.

I think peleton is in a different class because at least they have a real product which people like to use, and good brand perception overall, but the valuation is also probably out of control.

It has. And I don't think the resulting crash would be as bad. But there's still been an unprecedented run up in tech stocks this year, even for companies with declining sales which is certainly unusual.

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