Will the new tech bubble burst?
Technology companies like Facebook, Twitter and Groupon may be worth a lot of money, but some think that tech stocks are another bubble getting ready to burst.
This story was originally covered by PRI's The Takeaway. For more, listen to the audio above.
Facebook is currently worth about $50 billion, according to investment analysts. That's more than the Gross Domestic Product of Uruguay. Astronomical numbers like that have some investors thinking that the United States could be headed toward another tech bubble.
The .com bubble that burst earlier in the century created a recession, followed by a "jobless recovery," that sent shockwaves through the economy. "We're still quite a lot below the very peak of the .com bubble that burst so painfully back around the turn of the century," finance reporter Louise Story told The Takeaway. So some analysts think the economy is safer than it was back then.
Another key difference, according to Story, is that "back then, a lot of tech companies didn't really make much money." Today, on the other hand, "a lot of tech companies do make money. They actually sell things."
"This bubble, if it is a bubble, is a lot more discriminating than last time," Duff McDonald, contributing editor to Fortune Magazine told The Takeaway. This time around, investors are focused on about 6 to 12 companies, like Facebook, Zinga and Groupon, rather than the tech sector as a whole. McDonald says this tren "suggests some sense of rational investing decisions, but at the same time, the fact that so many people want into so few this time around means that Facebook in particular is valued at levels that people really can't seem to wrap their heads around."
For the general public, the valuation of these companies may not be the biggest issue. Facebook, Twitter, Groupon and other hot tech properties are still private companies, which means the general public couldn't invest in them if they wanted to. Story thinks that regular people are being denied any benefits that this upswing in stock prices could give. She says:
Before regular inventors have the chance to even try to get a piece of these... [these companies] seem to be riding this wave in the private markets, where only venture capital firms, elite investors, wealthy investors can get in.
These tech stocks may seem attractive to private investors now, but McDonald warns, "buyer beware."
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"The Takeaway" is a national morning news program, delivering the news and analysis you need to catch up, start your day, and prepare for what's ahead. The show is a co-production of WNYC and PR
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