Tags: Waters | tech | excess | bubble

FT's Waters: This Time Might Be Different for Tech, But There Is 'Excess'

By    |   Monday, 16 March 2015 06:40 AM

Talk of a bubble in the technology sector has percolated for more than a year, and while experts say conditions aren't as frothy as they were at the peak of the dot.com bubble in 2000, they see reasons for concern.
 
"While bubbles never recur in exactly the same way, some of the same forces are usually at work. In Silicon Valley, history is not repeating itself, but it is starting to rhyme," writes Richard Waters of the Financial Times.
 
In terms of the digital economy, it's more than just a dream now, as it was 15 years ago. Online U.S. ad spending has soared more than six-fold to $50 billion since 2000, he says.
 
In addition, tech stocks now has a 19.9 percent weighting in the S&P 500, up from 15 percent in 2010, but the weighting was 35 percent in 2000, Waters notes.
 
But, "this doesn't mean there isn't excess," he explains. More than 80 startups enjoy a valuation of more than $1 billion. And experts say that's overdoing it for many of these companies.
 
"The collateral damage from a downturn would be considerably more limited than last time, given the smaller amounts invested and the far more substantial businesses that have been created," Waters adds. "But the clamor among investors to get in on the latest Silicon Valley boom is rising to a crescendo. If this turns out to be the equivalent of 1996, with years of hard partying among investors still to come, then the after-effects could still be very unpleasant."
 
Billionaire entrepreneur Mark Cuban is more pessimistic than Waters is. He says the tech sector is in a bubble worse than that of 2000. The difference now is that the bubble is concentrated among privately held startups, Cuban writes on his blog.
 
"Back then the companies the general public was investing in were public companies. They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks," Cuban says.
 
Obviously that liquidity doesn't exist in private markets. "The bubble today comes from private investors who are investing in apps and small tech companies," he notes.
 
Not surprisingly for a co-founder of once-dominant Internet portal AOL, Steve Case disagrees with Cuban.
 
"There's a lot of capital, maybe a little froth in places like San Francisco or New York City or Boston, the tech hubs," Case tells CNBC.
 
"But most of the country is desperately in need of capital. Most entrepreneurs need those angel [investors] in their communities to support them, and I'm hopeful that there will be more people who are supportive of these young startups."

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Talk of a bubble in the technology sector has percolated for more than a year, and while experts say conditions aren't as frothy as they were at the peak of the dot.com bubble in 2000, they see reasons for concern.
Waters, tech, excess, bubble
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2015-40-16
Monday, 16 March 2015 06:40 AM
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