Technology – What are the differences and similarities of the dot-com bubble and today's technology boom and how big is the chance that another crash might occur?
Originally, the goal was to investigate a topic within the technology sector, which is one of the fastest growing ones in the world. Technology firms are the ones with the highest valuations at the stock exchanges globally hence we wanted to investigate on a potential overvaluation.
Tanja Gebhard & Sandro Schenker, 2018
Bachelor Thesis, Credit Suisse AG
Betreuende Dozierende: Oliver Bendel
Keywords: Dot-com Bubble, Behavioral Finance, Equity Valuation, Economic Bubble, Shiller P/E, NASDAQ Composite Index, Leading indicators, Tech Giants, Prospect Theory
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In the 90ies computers and mobile phone became parts of people's everyday life. Technology companies grew extremely fast and many start-ups have been founded after 1995 and went public even though most of them have not been profitable at that time. At the end of 1999 investors started to sell their technology stocks, which ended in a crash of the so-called dot-com bubble in March 2000. Yet 18 years later, the technology sector is booming again and there are some signs of an overvaluation. Is the technology sector heading towards another bubble?
In order to answer the main research question, we concluded an analysis of the NASDAQ Composite Index, Comparison of technology companies, leading economic indicators and a survey based on the prospect theory. Applying the first three methodologies, the target was to analyse the development of the financial figures and how they differ to the time before the dot-com bubble. The Prospect Theory and the survey that was conducted should bring clarity about how the financial behaviour of people has changed over the last 18 years.
We came to the conclusion that another technology bubble in the short-term is rather unlikely since today's technology companies are more sustainable and most of them highly profitable, which was not the case at all 18 years ago. Further, the whole sector is less reliable on US technology stocks only. Especially Asian securities are growing at a fast pace. However, the stock prices of some technology companies are still build on immense expectations in the future and thus are not fundamentally justified. This could mean that such securities are subject to an overvaluation and might suffer major corrections in the near future. Nevertheless, we still think that this would not yet trigger another technology crash. Through the survey based on the Prospect Theory we could also find out that people seem to be more risk averse than in the late 90ies. These findings should help the client as a basis to investigate further on the technology sector and the potential development of a bubble. The client could also focus on parts of the project such as financing of today's technology companies or differences in behavioral finance between male and female.
Studiengang: Business Administration International Management (Bachelor)
Fachbereich der Arbeit: Economics