The Contrarian Investor: Bubble, bubble, tech and trouble?

Bubble, bubble, tech and trouble?

Remember the great tech rout from earlier this year? Tech stocks plummeted as equity bears growled that the successful IPOs of Facebook, LinkedIn and Twitter were making a mockery of the boring business of fundamental analysis.

Flash forward just a few months, and we find that tech stocks (especially in the US) have in fact started to recover some of their verve, but what is clear is that ‘old-fashioned’ ideas of valuation based around, say, earnings are so ‘analogue’ – bar the odd exception such as Microsoft. The latter’s forward P/E ratio may look reasonable at 13 times earnings, while Google may even at a stretch be decent value at 18 times, but how on earth can anyone think that Twitter at 256 times projected earnings makes sense – ditto for Facebook at 36x and LinkedIn at 57x? Many industry commentators...