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.
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Kind regards,
Petar Posledovich
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