Goldman Sachs put out an incredible chart recently which sheds a light on the parabolic move upwards in unprofitable tech stocks:

There are probably a variety of factors at play:

1. Near-nothing interest rates make growth stocks attractive

2. Software use continues to grow globally

3. People always want momentum stocks… Also known as the Fear Of Missing Out trade

4. Trillions in excess dollars in the economy

There are several examples of overvalued tech stocks out there (a rising tide lifts all boats), but this Forbes article sums things up for one example, Shopify: This Bearish Forbes Take

“Last year, Shopify generated a total of $1.6 billion in revenue … or $1 of revenue from every $38 of GMV (gross merchandise value, in other words, “sales”).

In the scenario outlined above, assuming the same revenue to GMV rate, the firm must generate $1.8 trillion in GMV in 2027 – or 29% of Grand View Research’s 2027 global B2C e-commerce market forecast of $6.2 trillion.” In contrast, that’s nearly 4x what Amazon processed in 2020 (490 Billion)

The charts run similar for other Nasdaq and transformative companies like Nikola, Snowflake, DraftKings, Tesla, Virgin Galactic Etc. The Pandemic somehow launched these companies far above their long term averages and into orbit.

Everyone’s takeaway will be different, some will conclude it’s a bubble, and others that tech is the only industry that matters. They can both be right.

After all, everything they prophesied about the internet in the late ’90s came true. However, plenty of companies went bankrupt for being too early and the whole sector collapsed for 10 years while we waited.

Software may be eating the world, but don’t be surprised if it gets full and needs to nap.