A New Tech Boom?

This time it’s different right? A well-worn saying in the investing world is yet again being wheeled out to explain the latest rise in some Technology companies’ share prices, but maybe they are right this time.

Mention a Technology boom and everyone thinks of the dot.com boom and bust in 2000, the euphoria back then was stunning, the logic totally irrational – very few of the new wonder kid tech start-ups actually made anything, and even fewer had any income let alone profit.

No one focussed on actual earnings, everything was about potential and future projected profits IF all the jigsaw pieces would fit together.

The last couple of months have seen stratospheric increases in the value of some Tech shares with Nvidia leading the pack (up in value by 100% since 27th Jan 2023). Tesla is up by 81% since 3rd Jan 2023, Microsoft up by 45% since 3rd Jan and Meta up by 116.66% since 3rd Jan 2023.

But are these numbers really so great and something to be excited about? Well, yes, if you happened to invest at the end of 2022 but if you are a long-term holder, either directly or via funds the picture is not so pretty.

For example, META is down in value by 31% since September 2021, Tesla remains 50% down since October 2021, Microsoft is faring better, only 4.5% down since October 2021.

Only Nvidia is higher today than it was in October 2021, resting at 13.6% up since then.

So looking at the bigger picture, while this years price action looks terrific in some shares, overall it is not that impressive. So why all the hype, and why are the doom sayers predicting the next crash already, saying the Tech bubble is about to burst again?

This time it really is different.

It is generative AI (Artificial intelligence) that is causing the storm, everyone is talking about ChatGPT and how AI is going to revolutionise everything, reshaping industries and sparking huge productivity gains albeit at the potential expense of millions of jobs. (The less enthusiastic claim this is the start of The Terminator becoming a reality, to be fair, Arnie did say he would be back!).

At the front of the revolution is Nvidia, whose H100 chip is enabling AI development at a phenomenal rate. No-one is anywhere near them in terms of technology as demand for their $40,000 chip skyrockets. It is one of the most powerful chips they have ever made and this really is a case of having the right product at exactly the right time.

On the back of the sudden AI boom, any company with its toe in the AI related water is benefitting, Microsoft, AMD, Micron Technology, Intel and google are all enjoying renewed interest.

Like in 2000, when all new start-ups and those changing direction threw “dot com” in to their prospectus or news releases to guarantee a stratospheric rise, at the moment, mentioning your involvement in AI seems to have a similar price improving effect.

The reason it really could be different this time though is that most of the companies currently enjoying a mass resurrection in their share price are actually well established. They do have earnings and are profitable. So you could be buying in to a company with real prospects for the future but that is also already a bone fide leader in its field.

Bursting the bubble?

If AI really is the catalyst for the next technology boom there will be some significant investing opportunities coming in the next few months and years, but is the air getting a little thin at the top of this tech mountain right now?

With such stratospheric moves in the share prices of these high flyers there will undoubtedly be many private and professional investment managers looking to take some profits. So now might not be the best time to leap in to this new Tech boom, but it looks like AI is here to stay and some terrific opportunities will come soon.

As always, you have to pick your companies, buying in to these Tech leviathans when prices pull back and picking some younger companies that are going to be major players in this field in the future is going to be a key part of any successful portfolio in the next market bull cycle.

When you look at the way technology is developing in every area of our lives and the fact that most of todays Tech “boomers” are so well established, it seems reasonable to suggest that while this is a new Tech boom, it’s hard to see the “bubble” bursting in the same way it did in 2000

In conclusion

This time, it really does look different and you don’t want to miss Technology’s role in the next bull market cycle. As always, it’s difficult if not impossible to time the markets, but there really are better times to invest than others and patience is truly a virtue in this market.



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