We’re entering an unprecedented era of advanced technology and behemoth tech companies driving its development. Earlier this year, Apple became the first company to reach a one-trillion-dollar valuation, and Amazon followed suit, reaching a one-trillion-dollar market cap in September. Alphabet (Google’s parent company), Facebook, and Netflix are similarly dominant over the S&P 500, together providing…
We’re entering an unprecedented era of advanced technology and behemoth tech companies driving its development. Earlier this year, Apple became the first company to reach a one-trillion-dollar valuation, and Amazon followed suit, reaching a one-trillion-dollar market cap in September. first company to reach a one-trillion-dollar valuation reaching a one-trillion-dollar market cap
Alphabet (Google’s parent company), Facebook, and Netflix are similarly dominant over the S&P 500, together providing an enormous proportion of the technology we use on a daily basis and influencing the direction of the entire stock market. Blockchain and cryptocurrency news minus the bullshit.
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These companies certainly deserve praise, and they’ve been able to accomplish a lot over the past couple of decades, but we’ve dangerously overvalued these companies, and in the process, have set an unrealistic expectation for how technology develops. We’ve taken the exponential growth of technology (and tech stocks) for granted, and real results can’t keep up.
If this trend continues into the next year and/or next decade, things are going to get even worse — with more dramatically missed consumer expectations, and an even bigger gap between perceived and real values in the tech sector. Ultimately, that would lead to worse economic performances from some of the biggest tech companies on the planet, underwhelming levels of innovation, and if we’re not careful, a full-on economic recession.
Earlier this year, it was estimated that tech stocks were trading at an 11 percent premium, compared to other stocks on the market. In other words, with all other factors considered equal (including stats like revenue and trading volume), tech stocks are priced 11 percent higher. trading at an 11 percent premium
Among some companies, the disparity is even greater. Take Amazon as an extreme example; at a share price of $1,755 as of the writing of this article, the P/E ratio for the tech giant is a whopping 98.42; in other words, the price of the stock is 98 times higher than the relative earnings per share of stock. The average P/E ratio in the market is somewhere between 20 and 25. somewhere between 20 and 25
Part of this specific example is due to Amazon’s tendency to continuously funnel money into long-term investments, which makes investors willing to pay more. But on a broader scale, this tendency arises from the fact that we’ve come to expect enormous growth in the tech sector.
