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Tech Bubble Isn’t Popping Because FANGMAN Stocks Just Hit New Record

Last Updated September 23, 2020 2:10 PM
Joseph Young
Last Updated September 23, 2020 2:10 PM
  • Tech stocks are continuing to soar as FANGMAN hits a new record-high.
  • Throughout July, analysts widely expected the tech market to slump, fearing inflated valuations.
  • Several stocks, including Apple, buoyed the tech market en route to new all-time highs.

The total market capitalization of FANGMAN–Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and Nvidia (NASDAQ:NVDA)–has hit a new all-time high.

Contrary to previous predictions, the tech bubble is far from bursting .

Holger Zschaepitz, a market analyst at Welt, said :

Tech is eating the world: Total market cap of FANGMAN just hit fresh ATH in a week when bosses of Big Tech have tried to downplay their size in congressional hearing. Combined market cap of Facebook, Apple, Google, Microsoft, Amazon, Nvidia now at $7.2tn, equal to GDP of Japan and the UK.

tech stock
Tech Valuations have soared to a new all-time high. | Source: Holger Zschaepitz 

In late July, fund managers and analysts warned against the tech stock landscape. They argued that various metrics, including the stock-to-revenue ratio, have peaked.

The combined market cap of Facebook, Amazon, Netflix, Alphabet, Microsoft, and Nvidia hitting a record-high suggests momentum remains strong.

Why Analysts Were Concerned About the Tech Bubble, And Why It’s Still Rallying

Throughout July, analysts predicted the tech stock market to slump.  Many believed that the market was getting overheated with insufficient data to back it up.

Goldmoney Research said at the time:

Tech stocks are now more overvalued relative to the market than during the dotcom bubble.

tech stock market
Tech stocks overvalued relative to the market. | Source: Goldmoney Research 

Bloomberg business analyst Lisa Abramowicz pinpointed the “extreme” valuations in the tech market :

Tech valuations are the most extreme they’ve been since the 2000 tech bubble, based on the ratio of Nasdaq to small-cap stocks.

David Ingles, a Bloomberg anchor, said the gap between big tech and small-cap stocks signals a peak :

Chart shows U.S. tech stocks may have peaked. Ratio is nearing a three sigma levels from quarterly mean going back to 1985.

tech stock valuations
This chart shows the gap between big tech and small-cap stock valuations rose sharply. | Source: David Ingles 

Tech stocks have continued to rally during the past month, quashing concerns of an exhausted market. Apple’s share, for instance, increased by 10.47% on Friday, moving closer to a $2 trillion market cap.

As consumer trends shifted from offline to online  following the pandemic, tech stocks have seen increased momentum.

More people are watching Netflix, purchasing iPads, ordering online through Amazon, and seeking online entertainment.

The confluence of changing consumer trends and favorable market conditions seemingly catalyzed investor sentiment.

Some Analysts Foresee a Better Future for Tech

Several analysts believe that the stock market’s momentum is too strong to trigger an extended downtrend. 

Tom Dwyer, a strategist at Canaccord Genuity LLC, previously noted:

While many fear the current environment is like 2000 ‘dot com’ bubble, the macro backdrop suggests otherwise. The very different macro backdrop vs. 1999 suggest any pullbacks should prove temporary.

The stock market has rallied since April due to the Federal Reserve’s ultra-dovish stance on monetary policy, which includes rock-bottom interest rates. The U.S. central bank has no intention to change course anytime soon, which means a sustained market rally is possible.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author holds no investment position in the above-mentioned securities.