Choose Startups For Tech Exposure

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Tech stocks are getting eye-watering expensive. Here are a few examples using their price-to-earnings (P/E) ratio.

  • Tesla TSLA: 997x
  • Square SQ: 490x
  • Netflix NFLX: 83x
  • Amazon AMZN: 73x
  • Zoom ZM: 140x

These are all very well-run companies that probably have bright futures ahead of them. But their shares are priced for perfection — as if another 20 years of amazing growth is guaranteed. 

And those are just the profitable examples. There are plenty of high-flying tech stocks from companies that are still losing huge amounts of money. Off the top of my head, there’s Uber, Snowflake, Twitter, and Snapchat.

Overall, the Nasdaq 100 index trades at a 37x P/E ratio today. That’s quite high. And we can’t really use COVID-19 as an excuse because the shutdowns have actually been good for most tech stocks.

In my view, these are great companies — but not great stocks to buy. History is littered with noteworthy examples of similar situations that serve as warnings for us today.

Let’s take a look at Cisco in 1999. Cisco servers were powering the internet. The company’s revenue (and shares) had gone practically straight up for a decade. It seemed absolutely unstoppable.

Cisco shares peaked in 1999 at a share price of around $77. The P/E ratio was 110x, but the price/sales ratio was only 19x. It was a great company at a really stupid price. Since then, Cisco has never managed to reach that 1999 high again. Today it trades around $51.

Startups > Tech Stocks

I believe we’re nearing 2000-levels of exuberance in tech stocks. Prices will have to come back down to more normal levels at some point — and I suspect we’re not more than a few years away from that happening. I may be wrong, and the bull market may continue for another decade. But it seems unlikely based on history.

Either way, I simply can’t bring myself to buy tech stocks at these levels. But I obviously still want exposure to technology. So I’m getting it through private startups.

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William K. 3 weeks ago Member's comment

The startups that I should have bought are Digikey and Articat. They started at a dollara share.