We are not quite there yet, but we are getting close. The NASDAQ index, often considered a proxy for technology stocks, closed above 4,950 last week, the highest it has been since the tech bust began in March 2000. Seems like yesterday, but my goodness, that was almost 15 years ago.
I remember it very well. Our little company was less than six months old in March 2000, when the NASDAQ first hit 5,000 and peaked at more than 5,100 before falling off a cliff.1 Busy month.
Back then, you may recall the absurd valuations of companies large and small. Cisco was valued at more than 100 times earnings. Tiny, money-losing companies went public and were valued at billions of dollars.
Being based in Silicon Valley, we watched the frenzy and subsequent collapse up close.
Beautiful, new office buildings were built, filled and then emptied, seemingly overnight.
A lot of companies simply disappeared. The “real” companies, like Intel, Cisco and Microsoft, all survived, but stock prices returned to normal.
This time, the public companies included in the index have real earnings and their valuations are fairly reasonable. And another change from 2000 — this time, the biggest NASDAQ name is Apple. If you didn’t think the year 2000 was a long time ago, remember that it came before the iPad, the iPhone and the resurgence of Apple, which has now become the largest company in the U.S.2
The New Thing: Stay Private
Oddly enough, the new frenzy in highly valued, new companies is taking place in private markets, where companies like Uber are sporting $40 billion valuations, while still raising private-equity capital and remaining private.
In 2000, the saying was, “If you can fog a mirror, you can go public”. Now, these companies do not seem to be in a hurry for the IPO. After all, there is a ton of money in private equity and hedge funds, as this CNBC article notes. Plus, the club of private companies worth more than $1 billion is getting pretty crowded.
Perhaps this is where a frenzy belongs, if that is what this becomes:
Private, high-risk money chasing the latest, high-growth ideas, instead of rushing new companies into public markets and broad-equity indices before they are ready for prime time.