In many ways, the crash that followed the 1999/2000 Dot-com/telecom bubble wasn't one event, but two.
The first crash, which took place in March and April, marked a point of no return for many Internet stocks. Companies such as Pets.com, eToys and CMGI would never come close to re-approaching their early-2000 levels, and even Amazon.com (AMZN) took 7 years to do it.
On the other hand, many of the companies that were seen as plays on the telecom equipment and IT spending booms taking place at the time -- think companies such as Cisco Systems (CSCO) , Juniper Networks (JNPR) , Ciena (CIEN) , JDS Uniphase and Brocade -- re-approached and in some cases took out their early-2000 highs in the summer of 2000. It was only that fall that these companies truly began seeing a reckoning, as the telecom bubble began collapsing and signs began emerging that many companies had bought far more servers, routers and optical gear than what they really needed.
This chain of events has been on my mind over the last week or so, as many of the most richly-valued and/or speculative tech names out there absorb big losses even as the Nasdaq drops just modestly.
In many ways, it has been the modern equivalents of the Dot-coms -- EV and fuel cell plays such as Plug Power (PLUG) , FuelCell Energy (FCEL) and Blink Charging (BLNK) , 3D printing firms such as 3D Systems (DDD) , ExOne (XONE) and Organovo (ONVO) , cannabis plays such as Tilray (TLRY) , Canopy Growth (CGC) and Aurora Cannabis (ACB) , and so on -- that have been hammered badly over the last several trading days. Some generously-valued software names and stay-at-home plays have also been hit, and so have Chinese tech stocks.
But on the other hand, many tech stocks, including the tech giants and most chip stocks, have held up well. And so have equity markets overall.
I won't try to predict whether the last several trading days represent the start of a crash for the modern equivalent of the Dot-coms that many of the companies won't recover from. But if something like that did happen, there would be a pretty strong parallel with what transpired 21 years ago.
At the same time, given that a new stimulus bill looks poised to be passed by Congress in March, and given that -- between the effects of new stimulus, high consumer savings rates over the last 12 months and the ongoing vaccine rollout -- the macro outlook for the back half of the year looks quite strong, it wouldn't surprise me if quite a few tech stocks recover from any near-term correction and keep making new highs (or at least trade near their existing highs) for a while longer.
In such a scenario, some of the tech companies that have seen giant COVID-driven demand boosts, such as e-commerce and gaming plays, might not do that well as they see demand cool a little during reopenings. But many other tech firms, such as smartphone OEMs, cloud software and services firms, online travel agencies, or chip suppliers with strong automotive, industrial exposure and/or smartphone exposure, could actually see demand strengthen. And thus, much like the Ciscos and Brocades of the world during the summer of 2000, markets could keep extending them a warm embrace for a while.
For the Ciscos and the Brocades of 2000, it was the end of a debt-fueled demand bubble that led their shares to ultimately crater. For tech companies likely to see demand remain strong or inflect during the second half of 2021, it might be a trifecta of inflation, rising bond yields and a tightening Fed -- perhaps triggered by a surge in consumer spending on services that's fueled by reopenings, stimulus and recent savings -- that ultimately drives a large selloff. That, and perhaps diminished retail enthusiasm for stock trading, as some of the psychological factors that have arguably fueled a surge in speculative asset-buying behavior since last March wear off amid reopenings.
History rarely repeats to a fault, of course. Whereas companies such as Juniper and Ciena were thoroughly crushed in late 2000/early 2001 and even today trade at a small fraction of their 2000 highs, some of the quality, high-growth companies now sporting sky-high valuations -- think names such as Snowflake (SNOW) , Zscaler (ZS) or Coupa Software (COUP) -- might just need to go through a multiple-compression period for a year or two. Needless to say, stuff like this is very hard to predict.
But either way, given how much some high-multiple tech companies differ from others right now, both in terms of how speculative the action in them has been and how they're likely to see business trend later this year, there might be some lessons to take from how the collapse of the 1999/2000 bubble progressed.
