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- Are technology stocks in a bubble similar to the dot-com era of 1997 to 2000? According to a majority of investors surveyed by DataTrek, the answer is no.
- Fifty-six percent of respondents said tech stocks are not in a bubble, and 70% expect at least 5% in further upside in tech stocks over the next 12 months.
- Of the most popular tech stocks, investors favored investing in Microsoft and Amazon for the next 10 years over Apple, Alphabet, Facebook, and Tesla.
- DataTrek co-founder Nicholas Colas said one takeaway from the survey is that “tech is simply the safest sector in highly uncertain times.”
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As technology stocks continue to lead the market higher amid the COVID-19 pandemic, some investors are beginning to question whether tech stocks are in a bubble akin to the dot-com era of 1997 to 2000.
But according to a survey conducted by DataTrek, a majority of investors (56%) said they think US large-cap tech stocks are not in a bubble. Additionally, 70% of respondents said they believe tech stocks are poised to return another 5% or more over the next 12 months.
A third of the survey respondents said they believe those future returns will be driven by fundamental strength in tech companies, as consumers around the globe rely more heavily on tech products amid the work-from-home trend due to the COVID-19 pandemic.
But 39% of respondents said that future gains in tech stocks are reliant on either easy-money Fed policies (low interest rates) or fiscal stimulus policies from Congress.
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And if tech stocks are in a bubble akin to the dot-com era, investors surveyed by DataTrek think there would be more gains to come, with 61% saying that we’re likely in the middle of the bubble similar to the period from 1998 to 1999 rather than in an early stage (1997) or late stage (2000).
Which technology stocks are most overvalued? Respondents said they think that Facebook is the most overvalued tech stock (37%), followed by Amazon (33%). The results to this question are surprising given that Facebook trades at a forward price-earnings ratio of 29x versus Amazon trading at a forward price-earnings ratio of more than 100x, according to Colas.
Colas said the takeaway to the above question and responses is that many investors have concerns about the long-term durability of Facebook’s business.
On the flipside, when asked which technology stocks respondents feel comfortable owning for the next 10 years, the two top choices were Microsoft (36%) and Amazon (29%). Facebook finished last with just 2% of respondents feeling comfortable owning the social media company over the next decade. Tesla came in at 4%, Alphabet at 14%, and Apple at 15%.
The main takeaways from the survey, according to Colas, include that whether we’re in a bubble or not, a strong majority of respondents believe that US tech stocks are where you want to invest for the long term, adding that “Tech is simply the safest sector in highly uncertain times.”
Colas concluded that technology stocks today are different from technology stocks during the dot-com era bubble because their business models impact so many around the globe on a daily basis.
“In the end, that is the best explanation for why Technology stocks writ large are not in a bubble,” said Colas.