Charts: One Strong Evidence That We’re Headed Towards An Early 2000s Tech Stock Bust

Facebook is now worth more than Walmart!

Source: Quartz
Source: Quartz

Three years since Facebook went public, the social media giant’s stock has surged rapidly, while Walmart’s has remained somewhat stagnant.

As Quartz pointed out, Facebook’s stock has jumped over 30% in the last year as the broader S&P 500 struggled to grow. The surge in Facebook’s stock added more than $65 billion to Facebook’s market value, bringing it just slightly above Walmart’s $235 billion.

However…

Source: Quartz
Source: Quartz

Facebook’s annual revenue is nowhere close to Walmart’s!

Back in the early 2000s, one of the biggest reasons why the dot-com bubble burst was because technology companies that weren’t generating enough revenue to justify their valuations. Arguably, we’re seeing the same thing happening now.

But! The charts above does not represent the broader trend.

It is, in fact, very unlikely that we’re headed towards a crash as violent as the one in the early 2000s….

Source: B.I.
Source: B.I.

As you can see from the chart above, we’re currently nowhere close to where we were in the early 2000s, when the bubble and subsequent crashed occurred. The only reasonable explanation, then, is that we’re at the height of the boom cycle. Every 10 years or so, the tech economy accelerates (boom) before decelerating (bust). We’re now at the height of the boom — and should expect to see the economy decelerate in the next two years or so.

During the bust period, some startups and companies in Silicon Valley will be hurt (especially those that are based on extremely lofty valuations). People will start screaming that it’s a bubble. But I suspect that the major companies, like Facebook, will emerge from the bust period just fine.

The REAL problem is if we don’t enter a bust period in the next few years and the economy continues to accelerate…

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