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Why a Tech Bubble Might Not Be as Bad as It Seems?

09 Jun

bubble

There are a lot of debates within the public market and technology circles of whether we are in another tech bubble. In the past, I’ve been written extensively about several arguments that explain why I don’t believe we are currently experiencing a bubble in the tech sector. While certain aspects of the private technology market like pre-IPO valuations are certainly “bubble-ish”, the public markets seem to be trading tech stocks at very reasonable valuations and you can even argue some of the market leaders like Apple or Google are trading below its real market value.

If any other reasoning fails to explain why we are not in a tech bubble we can use the number one rule of economic bubbles: “If everything thinks we are in a bubble, then is not a bubble” ;).

Despite of the previous reasoning, we can’t deny the fact that certain characteristics of the current tech market presents signs of a bubble. However, you can make the argument that is could be a positive bubble.

Don’t take me wrong, we all know that bubbles cause a lot of economic damages when they burst. However, people often ignore the simple fact that some of the most powerful economies in the world have been built on the back of a series of economic bubbles. Take a look at some of the most famous economic bubbles in history:


bubble2

While some bubbles like the US 2008 housing bubble are just based on speculation in an existing market, other bubbles are based on the creation of new industries. Is the second type of bubble that, after it bursts, leaves behind an infrastructure that creates new generations of wealth and moves society forward. From that perspective, you can argue that, despite its negative consequences, bubbles like Britain’s railway mania in 1840 or the dot-com boom of the late 1990s created the necessary infrastructure to explore new frontiers and create brand new industries that became pillars of those economies.

When looking at the current state of the tech ecosystem, if we can get passed the crazy valuations in growth stage companies, we will see that the innovations in areas like mobile computing, data science, 3D printing, robotics, IOT, augmented reality, artificial intelligence etc, are likely to create a lasting infrastructure that will survive any potential bubble. While we should continue debating whether we are currently experiencing a bubble in the tech sector, we can relax a bit and think that it might be a good bubble ;).

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Posted by on June 9, 2015 in Uncategorized

 

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