Do we finally have too many new stocks? Are we running out of ammunition to buy them without wholesale liquidation of other stocks?
I think it depends. There aren't enough Caterpillars (CAT) and Honeywell-type (HON) companies transformed by management to be able to handle difficult world trade issues.
But after this week we definitely have too many software-as-a-service companies with something that seems special but really isn't. CrowdStrike Holdings (CRWD) , which claims to be the only cloud security company built fresh from the ground up, sports a market capitalization of $15 billion to make it one of the most successful initial public offerings (IPOs) of the era. Zscaler Inc. (ZS) should have $300 million in revenue this year against CrowdStrike's $250 million. Zscaler, with a market cap of nearly $10 billion, is the envy of the industry. CrowdStrike is known as a good company, but can it have a much bigger market cap than Zscaler? I don't know, but I do know people sold Zscaler to buy CrowdStrike.
How about Slack Technologies (WORK) ? I really like the story. Individuals like Slack and then they ask their companies to provide it because of how much it augments community. But Office 365 from Microsoft (MSFT) is an enterprise go-to name. They partner, but I think that this newly-minted $20 billion company will siphon off supply. Remember, while it is big you still don't have index fund money that can go into it. It's an orphan among stock-picking portfolios and you can only have so many of those.
Cisco Systems (CSCO) has a division that competes with Zoom Video Communications (ZM) , which itself was the brainchild of a Cisco team. Should Zoom be a $28 billion company? I am not so sure unless you compare it to similar tech companies, with which it is still outrageously valued.
These are on top of the Oktas (OKTA) and the Zendesks (ZEN) and the RingCentrals (RNG) and the MongoDBs (MDB) , all of which are designed to help customers before more efficient. When you see the market caps of Salesforce.com (CRM) and Workday (WDAY) , of ServiceNow (NOW) and Splunk (SPLK) , you begin to recognize that there are just too many of these companies now. Thank heavens for Salesforce's buy of Tableau Software (DATA) and IBM's (IBM) of Red Hat (RHT) or we would never crunch any supply.
What happens at this level? We are now in the one-deal-too-many mode, the mode where a software-as-a-service company comes public and instead of going to a premium it "breaks the print" or goes below the offered price. When that occurs and it has decent financials but is not superior to the incumbents, then it could be game over.
The bankers could not care. The venture capitalists are eager lest the window closes. The public? I would say you have had a big run. Now just be glad you have, and if you don't know what an Okta does or why Zoom Video could be challenged by Cisco, then you may need to ring the register now.
