What's going on?
According to analysts at investment bank Goldman Sachs, despite large tech stocks hitting their highest-ever level on Tuesday, investors shouldn’t worry about a “tech bubble”.
What does this mean?
Stocks of Facebook, Amazon, Apple, Microsoft and Google’s parent, Alphabet (a.k.a. the “FAAMG” stocks), have run up in recent years, with a few of the tech behemoths close to becoming the world’s first trillion-dollar company. Currently, the total value of FAAMG stocks is greater than Germany’s annual economic output. Beeindruckend!
Some investors are worried that tech stocks have increased too much, too soon, and that the “bubble” could burst, sending valuations spiraling downwards like in the early 2000s – when some investors lost up to 80% of their cash.
Why should I care?
For markets: “Keep calm and carry on (investing)” – Goldman Sachs.
In a note to investors, Goldman Sachs said it doesn’t believe there’s a bubble in tech stocks. A key difference compared to the early 2000s is that 90% of the shares’ rise is explained by profit growth at these companies (in the dotcom bubble, tech companies weren’t making profits so investors were largely buying in the hope of profit on the horizon). Goldman’s analysts also said that tech companies only represent about a quarter of the US market right now – and as sectors ranging from retail to finance increase spending on technology, there’s plenty of room for tech stocks to continue to grow for the next decade and beyond.
For you personally: Apple sets the scene for the future of tech.
Shares of Apple rose by 1% on Tuesday following the first day of its developer conference. On Monday, the company set the stage for how your interactions with technology and apps may evolve: privacy was front and center, with Apple’s Safari web browser set to block tracking features like Facebook’s Like by default. And, perhaps in response to investors asking the company to help battle phone addiction, Apple’s introducing ways to track – and set limits on – how much you’re using your devices.