AAA  Apr. 24, 2014
Blowing bubbles?
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High-flying tech stocks from Amazon to Netflix have had their wings clipped in recent weeks after reaching record highs. Twitter’s stock, for instance, is down 39 percent from its peak.

The downturn raises questions about whether the decline is temporary or a sign of another tech bubble about to bust.

Many investors are re-focusing on safer sectors, such as utilities and consumer staples.

The tech stock slump came just as venture capital investments hit their highest level since 2001 in the first quarter. Adding to the froth are Facebook’s recent multi-billion dollar purchases of small, profitless startups, including its $19 billion acquisition of messaging service WhatsApp. The deals were mostly stock transactions, which troubles longtime tech analyst Roger Kay.

“When Facebook takes its own inflated stock and buys other companies with it, the infusion pumps up the price of that company past a ‘reasonable’ level and infects other companies,” Kay writes.

There are other signs the market may be overheating, such as the stampede of startups trying to go public. Last year, 222 IPOs were priced in the U.S., the most since 2000.

If a tech bubble exists today, it’s nowhere near as big as the one that began bursting in 2000. Tech stocks aren’t nearly as overvalued as they were at the height of the dot-com boom. By March 2000, investors were paying $68.72 for every $1 in earnings generated by companies in the S&P 500 information technology index. Last month, the ratio stood at $18.26 for every $1 in earnings.

Associated Press
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