Despite investor fears of the bursting of the bubble, analysts say, there are some real earnings which support the bull run in the tech sector.
It has taken seventeen long years for the S&P 500 index to recover from the implosion of the dot-com bubble of the late-90s.
On Wednesday, the S&P 500 index rose 0.6% to a touch a record high of 992.29, breaking its previous peak of 988.49 of March 27, 2000.
This marks the ninth straight session of gains for the I.T sector which is largely leading the stock market in 2017, registering a rise of 22%, fueled mostly by a bull run in heavyweight stocks, including Microsoft, Apple, Nvidia and Facebook.
In the late 1990s, the euphoria surrounding the potential of the internet had fueled the market to a bubble which ultimately burst. As a result, erstwhile high flying companies, including Pets.com, experience an 80% selloff and many others came close to a collapse.
The gradual recovery of the IT sector over the years has given rise to social media, the boom of smartphones and the revolution of cloud computing.
“What a difference 17 years makes. In this day and age, companies can still not show a profit, but they have a true business,” said Jake Dollarhide, chief executive officer of Longbow Asset Management while referring to Apple. “They have hundreds of millions of customers, and that’s the big difference between the tech boom of 2017 and the tech boom in 2000.”
With Facebook’s share price registering a gain of 43% so far this year and with Apple’s shares rising by 30%, many investors worry that the tech sectors stocks are on a bubble and have become too expensive.
In June, the S&P 500 tech index traded as high as 19 times its expected earnings, its highest since the 2007, before the U.S. financial crisis.
The sell-off in tech stocks that followed has raised fears among investors that the sector’s bull run has come to an end.
However, in comparison to the earlier dot-com era, despite the S&P 500 index touching its new high, it still appears to be cheap since the valuation was equal to 48 times expected earnings during its previous peak in 2000.
“It’s a very different technology environment. This has been a slow grind for years,” said Phil Blancato, head of Ladenburg Thalmann Asset Management in New York. “There is some euphoria around tech, but there are also real earnings.”