Are the Top IT Technology Stocks in a Bubble and When is it Going to Pop?

Dear Reader,

Many leading investors claim global leading technology stocks as Apple, Amazon, Google, Microsoft and Facebook are in a bubble. I concur with that hypothesis.

Why? Simply put, global leading technology stocks are overvalued. Some of the bubbles like Tencent and Facebook already popped partially. Others, smaller, like GoPro, Zynga, GroupOn popped years ago. Why are technology stocks overvalued? Because they trade at too high earnings, revenue and book value multiples. Amazon and Netflix, for example trade at Price-to-Earning values of above 100. The others like Facebook, Microsoft and Google trade at too high both Price/Sales and Price/Earnings multiples. The market seems to be pricing that the revenues of these technology giants are going to go on growing at above 20-30% a year, which is almost impossible? Why? Because they are just too big already. Apple, Microsoft, Google and Amazon have market capitalizations either exceeding or close to 1 000 000 000 000 (trillion) USD. Just because of size effect the revenues and sales of these companies can not go on growing exponentially(at above 20% a year). The only way that could happen is if they enter successfully other huge markets like trade, finance, energy, transportation or whatever.

Wall Street Investment Banks' analysts seem to imply in their research notes and forecasts that the IT technology party is going to go on forever. As the former Citibank CEO Charles Prince famously or reportedly said "As long as the music is playing, you have to get up and dance". The music, as far as I am concerned, is going to stop soon. I forecast a deep correction of the US and global stock markets in 2020 or 2021. Wall Street's analysts have an interest in pumping up the prices of the hot technology stocks. As long as the stocks' prices of the FANG and other technology stocks keep going up, hedge funds, high net worth individuals, mid-sized clients and other short-term investors keep trading and huge stock trading commissions flow to Wall Street banks.

Many would say that the formation of bubbles is irrational. Well, in my opinion, it is not! Some people keep making money while the market is going up and on the way down, no matter that the mass investor looses. Bubbles are NOT irrational. They will keep forming and popping until the end of time in one form or another. Why? Because of fear and greed. These are prehistoric emotions since the beginning of mankind, which ensured, ensure and will ensure mankind will survive and thrive.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Tesla, Amazon. Does Profit Matter?

Dear Reader,

In the past rolling year the market capitalization of Amazon has nearly doubled. Amazon is now worth 889 billion USD. That is a staggering amount of money. Amazon is trading at Price-to-Earnings ratio of 229.34. This is basically astonishing. If you buy the whole of Amazon you have to hold it for 229 years to get your money back. Is Amazon overvalued? Yes, it is. Investment banks' research analysts point to the recent increase in the profitability of the company, especially for the second quarter of 2018. But still, Amazon is richly valued.

Tesla is another case in point. The electric car company is on track to lose about more than 2 billion USD in 2018 and is valued at 59 billion USD, more than Ford or General Motors. A pale comparison of the production numbers and profitability of the three companies says that Tesla is many times overvalued.

So what is wrong? Does profit making matter anymore? 

Of course it does. The valuations of these companies are bubbles. Sooner or later they are going to pop. Investment banks' analysts are desperately trying to explain the value of Amazon.com Inc. with growth and new verticals. For Tesla the story is growth and profitability soon. But these were the stories for Amazon or Tesla since 3-4 years. Do not get me wrong. I appreciate being able to buy books on the cheap from Amazon.com. But Amazon has to figure out how to make more money. Amazon Web Services is a good venue. If AWS and cloud services in general continue to grow strongly, Amazon might even live up to the current hype. But still, I regard the company as overvalued. Tesla has 10 billion USD in debt and is burning a lot of cash. If the company does not break even in 2 or 3 years, Tesla's survival as a going concern would be at stake, in my humble opinion.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich