In a decade of extreme wealth creation in markets, few assets did more to enrich investors than stocks in the Nasdaq 100 Index. Their combined value jumped by more than $7 trillion (Dh25.71bn), ending with the best year since the bull run began.
Powered by a near-doubling in Apple and gains exceeding 50 per cent in Microsoft and Facebook, the tech-heavy gauge surged 38 per cent over the past 12 months, the biggest increase since 2009.
Technology companies needed 15 years to recover from the dot-com crash, coming full circle in 2015. Since then, they have doubled again. But for all the rampant appreciation, the stocks still trade below their bubble-era highs relative to earnings.
While today's valuation of 27 times annual profits isn't cheap, it's a long way from the triple-digit ratios in place when the dot-com rally crumbled.
"I told myself we'll never see those valuations again in my lifetime and I still think that's true," said Doug Ramsey, Leuthold Group's chief investment officer.
“We’ve gotten closer than I would have expected, which I think is pretty remarkable only 20 years later.”
Leuthold keeps a study plotting earnings, dividends, cash flow and other measures to compare then and now, a kind of internet-bubble calendar that shows where the market is today relative to the 1990s.
Not that any two eras are likely to follow identical routes. Leuthold keeps the calendar mainly to show how crazy things got 20 years ago. But even if a crash isn’t imminent, the data isn’t an all-clear signal to keep buying, said Mr Ramsey.
"If we're going to match the greatest valuation extremes ever seen on large cap in history, there's probably another 30 per cent upside," he said. "It's certainly not my expectation."
Tech stocks have been able to rally to records even as they were beset by bad news. Regulatory scrutiny is bearing down on the sector, with Democratic presidential candidates and the US President Donald Trump himself stepping up criticisms of technology firms.
Plagued by scandals, tech firms saw sentiment turn against them in the late 2010s — though not in the stock market. Users became more leery of their smartphone providers and social media mainstays. Today, consumer advocates and some antitrust enforcers are calling for the breakup of Amazon, Apple, Facebook and Google, among others.
But compared with the dot-com run-up, the fundamentals of today's tech giants are much sturdier than they were back then, said Bokeh Capital's Kim Forrest.
"In 1999, there was a lot of hope in the product because there was no revenue in a lot of those companies, or very little," said the Pittsburgh firm's chief investment officer.
“A lot of the high-fliers like Uber and these consumer-orientated tech stocks, they still are unprofitable, but the difference is they have some revenue.”
In public markets, while earnings are better established, growth is getting harder to come by. Profits are likely to fall for many tech companies in 2019. Semiconductor stocks, for instance, are forecast to see a 15.4 per cent drop, and hardware and equipment firms are projected for a 6.8 per cent retreat.
In 2020, the sector is set for a rebound, with earnings growth predicted to come in above 10 per cent, according to Bloomberg data.
"Tech stocks have more wiggle room from a balance sheet perspective to plug issues whether it be too much debt or if they have a shortcoming in earnings," said Matt Miskin, a market strategist at John Hancock Investments.
“But at the end of the day they are growth stocks, and growth stocks typically trade on earnings and investors want growth.”
The Nasdaq 100's red-hot run has been the triumph of a few stocks over many, a state of affairs that also sows concern.
Megacaps Apple, Microsoft, Amazon.com and Facebook collectively contributed almost half the Nasdaq 100's gains over the past decade, according to data compiled by Bloomberg.
Add Google's parent Alphabet and Intel, and the cohort accounts for almost 60 per cent.
But the giants of today are cheaper than the dot-com leaders. Amazon trades at 82 times earnings now, down from north of 300 in 2001. Cisco's multiple also topped 300 back then. It's now at 17.
Cheap or not, they will be hard to dislodge, given their technological advancements and widespread consumer usage, according to Mr Miskin.
“It’s not just for investors,” he said. “It’s a global phenomenon and it doesn’t look to be stopping just as the decade comes to a close.”
