There are three types of tech stocks today.
Companies that aren’t doing anything real are worthless. I’m talking about crypto and NFTs, I’m talking about all the metaverse stocks without a business model. For these companies it’s 2000, it’s Gotterdammerung. Just as was the case then, there’s a lot of stuff that was valued based on the assumption of no limits.
It was easy to find the moment it all came crashing down last time. It was January of 2000, when Time Warner “bought” AOL in a deal that gave AOL shareholders more than half the resulting stock. This put an upper limit on the value of Internet stuff. It was all downhill from there.
The big moment this time was the Crypto SuperBowl. Matt Damon read a ridiculous script that equated buying cryptocrap with going to Mars. It was at that moment, during a game played in SoFi Stadium (another name due to crash) that we realized how artificial it all was. Smart people got out.
There are also companies that are worth less. These are outfits like Cloudflare and Upstart, both of which I own, which were simply overvalued. If you’re not turning a profit, but you’re growing toward a profit, you have a valuation. But it’s not 50 times revenue. It’s not even 10 times. (Looking at you, Tesla.) You measure the revenue, you estimate the future profits based on growth and the rate of declining losses, and you get a rational number.
Finally, there are the bargains. These start with the Cloud Czars, the Internet’s landlords. Their needs are paid for, they collect rent from everyone else. Amazon and Google and Microsoft built their data centers with cash flow. Everything they get after can go to the bottom line. Apple brought three quarters of its $20 billion in service revenue to the net income line last quarter.
The Czars are loaded with cash and will be able to buy the wreckage for pennies on the dollar. You’ll know it’s time to get back in when they start buying stuff. Their compressed multiples on earnings make them bargains. Apple at 22 times earnings? Google at 19? Sign me up! Following them will be the business applications like Salesforce and ServiceNow that let companies cut costs, but they have yet to hit their own bottoms because everyone knows that.
If you want to get the economy going again, win the war in Ukraine. That’s what the Biden Administration is doing with its $40 billion aid package. Winning the war will dissuade China from starting a war. The mood will change, and we’ll go up again.
