Since the dot-com boom, a lot has changed.
The internet moved to a mobile device. The data center moved to the cloud The cars are driving themselves. Chatbots have become smarter.
One thing hasn't changed. The investors rush for the exits when the economy starts to improve. The tech-laden Nasdaq finished in the red for a fourth quarter in a row, its longest losing streak since the dot-bomb period of 2000 to 2001. In 1983, when the video game market crashed, it was the only negative four-quarter stretch in the history of the Nasdaq.
For the first time in its history, the Nasdaq has fallen all four quarters. In the first three months of the year, it dropped 9.1%, followed by a second quarter plunge of 22% and a third quarter decline of 4.1%. There was a 1% fall in the fourth quarter.
The year was the third worst on record for the Nasdaq, with a steep decline. Fourteen years ago, the financial crisis caused the drop.
"It's really hard to be positive on tech right now," Gene Munster, managing partner of Loup Ventures, said on Wednesday. You feel like you don't have anything. You are not getting the joke.
The dot-com bubble burst in 2000 and the index sank 39%. The internet taking over the world was no longer a dream. Nine months after Pets.com went public, it shut down. After holding its IPO in 1999 and seeing its market cap grow to almost $8 billion, EToys went bankrupt in 2000. In 2000, the delivery company filed for an IPO, but withdrew it in August of that year.
Amazon had a bad year in 2000. The next year, the company fell by more than half. Both Microsoft and Apple plummeted in value.
Today's parallels are very stark.
The company lost two-thirds of its value in the year 2022. The car company fell by the same amount as it crashed into reality. The company dropped by half.
Many of the companies that went public last year at ridiculously high valuations lost 80% or more of their value this year.
This year was very similar to 2000 in that regard. The digital currency fell by more than 50%. The value of thecryptocurrencies was wiped out. FTX went bankrupt after it reached a $32 billion valuation. Criminal fraud charges have been filed against Sam Bankman- Fried.
The only major company in the space is Coinbase. More than 45 billion dollars in market cap was eliminated by the fall of its shares. Over the course of the year, the value of the companies on the exchange has fallen.
By the time the market bottomed in October 2002 it had lost $5 trillion of its value, which was at the peak of the company's value.
Things are different even though they are similar.
The collapse of 2022, more than anything else, was about investors and executives waking up to reality.
After a decade of growth, companies are downsizing. With the Fed raising rates to try and get inflation under control, investors have stopped putting a premium on unprofitable growth.
"If you're looking solely at future cash flows without profitability, those are the companies that did really well in 2020, and those are not as defensible today," Shannon said. Some parts of the sector will have light at the end of the tunnel, as the tech is dead narrative is likely to be in place for the next couple of quarters.
If the economy goes into a recession, the continuing rate increases by the Fed will end. Technology thrives when the economy is in growth mode.
The Fed raised its benchmark interest rate to the highest level in 15 years in December. In the years that followed the financial crisis, the rate was close to zero.
More than a decade of zero interest rates allowed manias and asset bubbles to build in every single part of the economy, according to a tech investor.
Palihapitiya took advantage of cheap money by investing in special purpose acquisition companies and blank check entities that look for companies to take public through a reverse merger.
SPACs raised more than $150 billion on U.S. exchanges in the prior year, but in the next year they will raise more than $170 billion. This year, it was $13.4 billion. In the last two years, CNBC's Post-SPAC index has lost two-thirds of its value.
Predicting a bottom isn't a good idea. The economy has changed since the 2000 dot-com crash and no two crises are the same.
Few market analysts are expecting a bounce back in the coming years. "If we thought we were at the bottom, we would deploy today," said Munster.
The founder of Bullpen Capital expects more pain to come. He looks at how long it took for the dot-com era to end. Since the record price was hit, it's been over a year.
"I think we're going to see a lot of bargain basement snarfing up of companies," said Davidson, who got started in tech investing in the 1980's. We might have two years to get to the market bottom.
In 2001, the IPO market was as bad as it is today.
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