(Drivebycuriosity) - Recently there is a lot of talk that technology stocks might be in a bubble again like in the year 2000. The bubble claims refer to the fact, that the Nasdaq, which stands for technology, gained 24% in the recent 12 months and reached an all-time high, the first time since the peak from spring 2000, the so-called Internet bubble.
I think the bubble talks is nonsense. The Nasdaq 100, which contains the biggest components, costs just around 20 times the expected profits for this year (P/E) (wsj). I think this is cheap because companies like Apple, Google, Netflix, Amazon.com, Facebook & Baidu are growing much faster than the more traditional companies which dominate the Dow Jones (P/E 16 ) and the S&P 500 (P/E 18 ) (wsj).
New Technological Revolution
I believe that the current stock prices don´t reflect the potential the technology companies have. I think that we are still in the beginning of a new technological revolution which will drive company profits and stock prices. We
are experiencing rapid advances in 3D-printing, robotics,
nano-technology, bioengineering (new medicaments) and more industries
which all are reducing costs, open new markets and make our lives
better.
Consumers love smartphones, tablets, e-book readers, game consoles and
other high tech devices. Those gadgets, which didn´t even exist in the
year 2000, are rapidly getting better thanks to new apps and other
software. Many digital devices can be used to access the Internet which
accelerates the mobilization of the World Wide Net. The number of
frequent Internet users is climbing sharply - especially in China and
other emerging markets.
As a result people worldwide are spending much more time and money on
the Internet for E-commerce and other services. Billions are using
Internet and other incarnations of software to organize shopping,
leisure time, traveling, dating, eating out and more.
Therefore online shops, search providers, social networks and a lot of
other Internet based services are growing fast. Simultaneously there is a
thriving demand for devices & software that enable the burgeoning
data streams (chips, server, router, transmitters, satellites and more).
Technology in general is getting more and more important for our every
day life. Chips & software are increasingly used for medical supervision, entertainment,
communication, security, controlling room conditions, monitoring cars,
steering household appliances and a lot of other purposes.
Technology also is getting more important for businesses. Companies have
to invest into Internet and other hard- and software technologies to
adapt to a rapidly evolving world. They will use more technology to
reduce costs (for instance via robotics and other forms of
automatization) and to process a deluge of data to respond to
competitors and to exploit chances on global markets.
And: Many fund managers are too skeptical (bearish) and are underinvested. They will experience a growing performance pressure which will translate into further buying and climbing stock prices. I think that all these factors will play together and the Nasdaq could reach the mark 10,000 by the end of 2017. Enjoy!
Disclosure: I am an investor in Amazon.com, Apple & Baidu.
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