Is This a Tech Bubble or Not?

Photo: Kostenko Maxim / Shutterstock

Are we in a bubble?” is the evergreen topic of tech punditry – the equivalent of the political commentariat’s nonstop speculation about whether Hillary Clinton will run in 2016. Tech writers theorize about bubbles for lots of reasons: because they’re bored, because it gets clicks, because they’re annoyed by Silicon Valley hubris, because they remember 1999, because they see stamping out hype as being in the public interest, and because they want to be seen as prescient if a bubble does pop.

With all this speculating, it can be a little hard to remember what the actual arguments are. So here is a refresher, for help in formulating your very own opinion on today’s tech bubble or lack thereof.

Yes, This Is a Tech Bubble

Who believes this: Business Insider, Times columnist Nick Bilton, Bloomberg terminal subscribers, Gawker, The Economist, Fox Business, BuzzFeed, Marc Faber

Why they’re so certain: I mean, look around. Money-losing start-ups are going public at billion-dollar valuations. Apps with no revenue are turning down outrageous buyout offers, and stock prices are outpacing earnings by the biggest amount since 1999. Harvard MBAs are flocking to Silicon Valley. Venture capitalists are chasing Bitcoin start-ups and throwing money at their local coffee shops. Companies are using meaningless “vanity metrics” to prop up their numbers. For God’s sake, Candy Crush held an IPO. Is this an image of a stable, rational tech sector?

What could prove them wrong: Nothing, basically. If a bubble fails to pop this year, they’ll simply push their projections back to next year. Each new billion-dollar IPO will serve as proof of a further inflating of the bubble, and the doomsaying will only grow louder. The fun thing about forecasting market crashes is that it will always come true eventually

Most-cited chart: This one, of the tech-heavy NASDAQ index, which shows that stocks are nearly back to their 2000 levels.

No, This Isn’t a Tech Bubble

Who believes this: Quartz, The Wall Street Journal, Marc Andreessen, Ben Horowitz, Biz Stone, Joe Fahmy, Ron Conway, Scott Kupor

Why they’re so certain: Sure, there’s some silliness in Silicon Valley right now. But if you look under the hood, the fundamentals of the tech sector are much stronger than they were in 1999. Companies are more mature, many have robust revenue streams, and the ones that don’t have tons and tons of users. Three billion people are connected to the internet now – about ten times as many as in 1999 – and that means the overall pie available for tech companies is much, much bigger. What we’re seeing now isn’t a temporary explosion in dot-coms – it’s the fundamental realignment of the global economy, and the dawn of a new information age that will see old-line incumbents replaced by tech disrupters in every industry in the world.

Moreover, thanks to regulations that have narrowed the IPO pipeline, fewer of today’s tech companies are publicly traded than in 1999, meaning that even if there is a bubble and it does pop, the losses will mostly be contained to the Silicon Valley investor class, and won’t spread to the general public like they did the last time. In other words, there is no Pets.com phenomenon this time around.

And Candy Crush? Candy Crush is profitable. That’s a lot more than you can say about Twitter.

What could prove them wrong: A bubble pop, or, at least, the collapse of one or more giant technology companies (Facebook, Google, Apple) that would lead to the failures of others.

Most-cited chart: This one (via Quartz), which shows that the number of tech companies going public is still much smaller today than it was at the height of the first dot-com boom.

Is anyone in the middle?

Yes. A growing number of people think that while some private tech valuations may be out of line with reality, the overall industry rests on much firmer ground than it did in 1999, and the underlying causes of the boom are different this time around. The Wall Street Journal, among others, has taken this view, and it’s probably the right one.

But what fun is nuance? Rock-solid certainty is the oxygen of the bubble-speculation ecosystem. So read up, form your own binary opinion, and get to doomsaying or cheerleading, as you see fit.