Investment valuation in new age internet companies is soaring. Facebook is valued at $50 billion, Twitter is valued at $10 billion and Groupon is chasing a $25 Billion IPO. For some jittery investors it feels like 1999, and they are saying this is a new tech bubble.
Is it really a Tech Bubble?
It feels like one. All bubbles, stock market, real estate, commodities e.t.c happen during a period of high liquidity. The more money flows into an asset class the higher the price of that asset rises.
In the tech bubble of 90s, the bubble got in gear when investment funds started raising money to invest in then technology companies. Just like then, we see Goldman Sachs e.t.c raising billions to invest in the new age technology companies. Source NYtime article.
Tech Bubble Prediction
When it comes to prediction, history is a good guide. In any bubble there are a few winners and many losers. In the tech bubble of 90s we saw Amazon, Yahoo & Ebay emerge while a string on losers Webavan, Akamai, Jupiter networks and many other were trashed in the dustbin of history.
Today, the bet is on internet companies with a competitive advantage (business model that cannot easily be copied) like Facebook & Twitter to emerge victorious. On the other hand companies like Groupon & others whose model can be easily copied might not make it.
The challenge for investors is picking winners. The situation is best summarized in NYTimes article:-
As cash continues to pile up, the fear is that all this money cannot be put to work responsibly. With only a few perceived “winners,” some investors must be choosing losers or paying too much.
written by Constantine Njeru
\\ tags: Amazon, Asset Class, Competitive Advantage Business, Dustbin, Ebay, Facebook, Goldman Sachs, History Today, Internet Companies, Investment Funds, Investment Valuation, Jittery Investors, Liquidity, Losers, Money Flows, New Age Technology, Prediction History, Raising Money, Technology Companies, Twitter
