Why the tech bubble won’t burst despite Airbnb’s crazy IPO surge

AIRBNB is a great company. But after last night’s massive IPO pop, markets have got the serious heebie jeebies.

Priced way above the indicated range, its shares more than doubled, valuing the loss-making business at $100 billion.

Having seen meal deliveries group DoorDash do the same earlier this week, and Snowflake surge 258% since floating in September, talk of bubbles is everywhere. 

For some, it feels like Christmas 1999, just before the tech bubble burst.

But there’s a difference. The tech companies with off-the-scale valuations now are nothing like the flimsy “dotcoms” that got caned back then.

They have serious revenues, muscular balance sheets and have made big inroads into traditional business models, be that hotels or high street retail.

In many cases, they’ve proved their worth as people flocked to them in Covid, changing their buying habits for ever.

Admittedly, they’ve also been on a tear because Covid hammered every other type of investment. Now the vaccines are bringing the potential of a bounceback in 2021, investors are moving back into traditional companies.

Will they switch out of tech stocks to do that? Doubtful. Polar Capital today points out that, before the Nineties bubble burst, tech made up 32% of the S&P 500 by valuation and 13% by profits. 

Now, it’s 27% by value and 26% by profit. 

Very different.

Tech shares are undoubtedly high, and will plateau while companies’ profits grow into them. But a 2000-style collapse? Doubtful. 

Famous last words...