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FAANG and most other tech valuations have grown enormously over the last 10 years, but they've roughly followed the growth of their revenue streams and potentia
by kahnjw 8y ago
FAANG and most other tech valuations have grown enormously over the last 10 years, but they've roughly followed the growth of their revenue streams and potential monetization opportunities. There may be some short term corrections, but the notion that the majority of risk in the current economy is concentrated in FAANG and some tech IPOs seems overly simplistic and probably just wrong.
The GFC was a result of individuals taking on massive amounts of debt in aggregate. Corporate America has similarly taken on a lot of debt over the last decade for buy backs and growth. As the author of the article notes, the last 10 years have been great for cheap debt. Negative balances are still a risk and rates are going up. The companies taking on the most risk in terms of debt are for the most part not traditional tech. Think Chevron, GE, and other industrial and energy companies. I'd conclude that the majority of the economic risk is in fact not concentrated in FAANG or even most of tech, but elsewhere in the economy.
That doesn't mean some tech companies won't get caught in the storm. I think we could very easily see a couple mid-size players go the way of Yahoo (the Snaps and Ubers).
- unimpressive 8y ago>The companies taking on the most risk in terms of debt are for the most part not traditional tech. Think Chevron, GE, and other industrial and energy companies. You mean, precisely what would be considered 'traditional tech' in any sane world? :P Industrial and energy companies have a much larger and more important impact on the economy than information technology. We live in the strange topsy turvy world where 'information technology' has somehow been narrowed to "that guy who fixes your computer and administrates the servers" and 'tech' narrowed to mean what 'information technology' should.
- nostrademons 8y agoIt's because growth has been concentrated in software for a decade or two, and people only pay attention to growth. It's actually more absurd than you note: "tech" today means "Internet tech", and people have largely forgotten that less than a generation ago IBM, HP, Sun, Oracle, Intel, AMD, and Microsoft were all "tech" companies. (You'd have to go back two generations for Chevron and GE to be "tech".) But that's the nature of psychology. Everything that was around when you were a kid is just part of the natural order of things, while the only new and exciting technology is the stuff you just heard of in the last year or two. (It's pretty likely the pendulum will shift again in a year or two, and FAANG will no longer be tech, which will be reserved for crypto[currency - this is another good example, where if you're > 30 'crypto' means 'encryption' while if you're < 30 it means 'cryptocurrency'], robotics, self-driving cars, drones, and AI.)
- perl4ever 8y agoI find it fascinating that your glib list of "cool new tech stuff" - cryptocurrency, robotics, self-driving cars, drones, and AI, seems to have a huge characteristic blind spot. There's a major industry that for some reason people don't mention these days when they are imagining where the future is coming from, and I find it entirely inexplicable that it just doesn't register. If I told you what it is, you probably would find it too obvious in retrospect, so I won't. I am over 30 BTW. And no, it's not green energy.
- joejerryronnie 8y agoMy guess is you're talking about biotech/medicine/health. This is the next sector poised to have transformative growth over the next 20 years.
- triviatise 8y agoaccording to a bloomberg article that I cant fully read, as of Feb 2018 <<The debt-to-equity ratio for the S&P 500 is 1.1 compared to an historical average of 1.7; >>
- kahnjw 8y agoCorporations use debt to inflate valuations in the short run, so that sounds correct. https://fred.stlouisfed.org/series/TOTDTEUSQ163N https://fred.stlouisfed.org/series/TOTDTEUSQ163N