Technology stocks have taken a stumble over the last week after soaring to heights they last saw just before the dot-com bubble collapsed 17 years ago. Here’s why this time might be different.
Technology companies are the main reason the stock market has climbed in recent months. The technology index of the Standard & Poor’s 500 index is up 17 percent this year, twice as much as the broader S&P 500.
Last week they got close to the highs they set all the way back in March 2000. At that time, Mark Zuckerberg was in high school, the iPod didn’t exist, and few people had any idea how a company could make money from internet searches.
What’s different now? Unlike then, many of the market’s favorite tech companies are actually making gobs of money.
“The sector is delivering on a lot of the promises that investors hoped for during the bubble years,” Jack Ablin, chief investment officer for BMO Private Bank.
And yet last week, when the tech index seemed to be just minutes away from breaking a record, the stocks went into a steep slump. Some analysts think the stocks will fall a good deal further.
That might bring up bad memories of the tech bubble and its aftermath: the technology index peaked on March 27, 2000, but it nosedived following numerous high-profile company failures, the disastrous AOL-Time Warner merger, and the recession and stock market slump that followed the September 11th terrorist attacks. By late 2002, the tech index had fallen a staggering 80 percent from its peak.
Few investors expect that kind of catastrophe this time. One reason is that technology companies are very profitable now compared to then. After adjusting for inflation, the three largest technology companies of 2000, Microsoft, Cisco Systems and Intel, reported $113 billion in combined revenue that year. Apple…