Practical analysis for investment professionals
03 November 2020

Dot-Com Redux: Is This Tech “Bubble” Different?

Over 20 years ago, the NASDAQ Composite Index soared to what was its all-time high. On 10 March 2000, it crested at the 5,132 mark.

And then things came crashing down.

The dot-com bubble popped. From its impressive heights, the NASDAQ Composite plunged into a downward spiral, dropping by roughly 75% in the subsequent two years. It would take about a decade and a half all told for the index to return to and surpass its previous peak.

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Recent volatility notwithstanding, many investors look at the NASDAQ today and have a sense of déjà vu. They are starting to describe the index’s performance with terms like those trotted out during the tech bubble of the late 1990s. Valuation levels for these new tech darlings, the analysts tell us, are “frothy,” “excessive,” and every so often, “bubble-like.”

So what are we to make up off all this? Is the NASDAQ headed for another crash, a bust of potentially dot-com bubble proportions?

For insight on these questions, we compared the current tech landscape to that of the dot-com bubble era of 2000. To do this, we took all NASDAQ-listed companies on 10 March 2000 and 1 September 2020 and divided all tech-focused firms into 15 sub-industries. From this, we derived the median price-to-book (P/B) and price-to-sales (P/S) ratios for each of the 15 categories and compared those values at the two different points in time.

Why these two valuation measures rather than the more common price-to-earnings (P/E) ratio? Because more than half of the companies in the year 2000 sample had negative earnings and thus lacked a usable P/E.

So what was the takeaway? What does the comparative analysis tell us?

March 2000 P/BMarch 2000 P/SSeptember 2020 P/BSeptember 2020 P/S
Communication Equipment10.276.672.011.19
Computer Hardware6.052.491.431.04
Electric Equipment2.552.101.221.29
Electronic Components3.681.682.050.69
Electronic Gaming5.174.364.715.68
Information Technology3.681.563.190.93
Internet Content7.2532.444.523.15
Internet Retail5.358.986.571.47
Scientific Equipment2.812.363.072.60
Semiconductor Equipment10.926.563.754.52
Software: Application10.5713.395.643.99
Software: Infastructure9.078.716.444.38

Quite simply, most tech sector categories are still nowhere near the valuation levels of the dot-com era.

In fact, on a P/B basis, the median tech sector firm of March 2000 had a valuation level that was 100% greater than that of its September 2020 counterpart. And on a P/S basis, the median March 2000 tech company had a 200% greater valuation level.

Only two tech categories had valuation levels in September 2020 that approached those of March 2000. Those were the Electronic Gaming and Scientific Equipment sectors. In Electronic Gaming, the September 2020 median company’s P/S valuation exceeded that of its March 2000 predecessor. And the median Scientific Equipment company’s valuation on a P/S and P/B bases outpaced that from March 2000.

Aside from Electronic Gaming and Scientific equipment, all 13 of the other tech categories had higher valuations in March 2000 than they did in September 2020. Notably, the Internet Content category had a median P/S ratio of 32.44 in March 2000 compared to 3.15 in September 2020, while the median Semiconductor firm had a P/B ratio of 13.85 in March 2000 and 3.32 in September 2020.

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Our research demonstrates that while the current tech industry has yet to replicate the excessive valuations seen in the lead-up to the dot-com crash, their valuations levels are elevated. Indeed, in most subcategories, they are higher than they were in nearly all other years aside from the lead up to the tech bubble in 1998 and 1999.

Of course, even though valuation levels would need to double or even triple to compare to in March 2020, pundits will no doubt continue to speculate and sound the alarm. “Tech is overvalued and approaching dot-com bubble territory,” they’ll warn.

But based on our analysis, such concerns are overblown and such warnings safe to ignore. Whatever the current era for tech stocks, it is not a dot-com redux.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images / egromov

About the Author(s)
Derek Horstmeyer

Derek Horstmeyer is a professor at George Mason University School of Business, specializing in exchange-traded fund (ETF) and mutual fund performance. He currently serves as Director of the new Financial Planning and Wealth Management major at George Mason and founded the first student-managed investment fund at GMU.

Chaitanaya M. Vij

Chaitanaya M. Vij is a student with a vigor for finance and a particular interest in data analysis and impact investing. He's currently completing his undergraduate degree from George Mason University while exploring various roles in finance, ranging from banking to money management.

5 thoughts on “Dot-Com Redux: Is This Tech “Bubble” Different?”

  1. Ryan Patton says:

    Hi Team,

    I am surprised to see the “Software: Application” group trading today at only a 3.99x P/Sales multiple. Can you please let me know what companies are included? To me that seems to be a Tech subsector with valuations that are extremely stretched, but your data shows the opposite — trading 4x today vs 13x in the 2000 bubble. Maybe I am wrong or there is something funky going on with the weightings to come to the aggregate 3.99x P/Sales.


  2. Kirk Cornwell says:

    The Fed-Treasury-Wall Street alliance since 2008-9 is the difference. It is that simple.

    1. Lchoro says:

      The big difference is that the money printing is overt with the Fed, ECB, BOJ, and others monetizing the entire debt issuance. Back then, there was an agreement by the Bank of Japan and Europe to buy treasuries, which ended in 1998. Once the program ended, markets started to collapse in October 1998 and the Fed had to step in with interest rate cuts and treasury purchases until Y2K.

      Valuations are useless since the profits and assets are the result of printing money and issuing stock and debt to raise funds.

  3. Tommy Zhu says:

    Thank you for making this article with data comparison between dot-com bubble in 2000 and current valuation. Compact and informative.

  4. Jeff L says:

    You need to source your information if you are going to present it in an article. I don’t think it is accurate.

    For example, your Price to Book average for Semiconductors is 3.95? Let’s take a look at the 10 largest Semiconductor companies in the SMH ETF from data from

    1. Taiwan Semiconductor Manufacturing: 10.14x book
    2. Nvidia Corp: 21.85x
    3. Intel: 3.13x
    4. ASML: 15.3x
    5. Broadcom: 7.69x
    6. Texas Instruments: 18.89x
    7. AMD: 28.59x
    8. NXP: 5.47x
    9. Qualcom: 29.3x
    10: Micron: 2.24x

    The average across the group is about 14.2x book.

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