No bubble for the Bigh Tech

No bubble for the Bigh Tech

Adjusting the profits for intangible assets, taking into account the costs of research and development, the valuations and the multiples of the Stock Exchange appear to be far from being"tight".


Profit growth, absence of debt and valuation that, considering the adjusted earnings for intangible assets, appears to be far from being “tight”.

These are the main features of modern technology companies, which are one of the most defensive titles in the market, especially in a general, steady world.

"We are talking about a sector that is no longer the one of the 2000’s and which is therefore far from a potential bubble effect," explains Stefano Reali, portfolio manager of Pharus.

The real critical point are valuations, which apparently might seem excessive. Especially if you look at the main market multiples, such as P/E or PEG (ratio between P/E and Expected Profit Growth rate). Amazon, for example, has a price/earnings ratio of 113, while Facebook, Apple and Alphabet (which controls Google) have a P/E of about 33. Netflix, on the other hand, to close the picture of the so-called Faang, has a P/E of about 79.

The valuations are excessive, however, once the perspective is changed, the picture improves significantly. Let’s start with a comparison between profits and market capitalization. "If in 2001 the dot-com generated just 90 billion in profits against a total capitalization of 6.5 trillion dollars, today the profits of modern technology companies are almost quintupled and have reached 420 billion, against a market capitalization that has only doubled to 13 trillion - argues Reali – In addition to this, the average growth trend in the technology sector is twice bigger compared to the market in general (15% against 7%)".

Another significant indicator is the profit margin (the ratio of net income to revenues), which for tech securities is on average around 20% compared to the 12% of the market. Finally, reaching to the multiples of the Stock Exchange, adjusting the profits for the intangible assets, like the costs of research and development (that determine the competitive advantage in terms of innovation), "Big American technology valuations appear to be far from being “tight” - concludes Reali - And companies like Google see the P/E fall from 32 to 23, with a discount of 30% compared to current stock market quotes".

Covid-19 made it clear that the future of markets is in technology.

Information message - The information in this message is produced for information purposes only and therefore does not qualify as offer or recommendation or solicitation to buy or sell securities or financial instruments in general, financial products or services or investment, nor an exhortation to carry out transactions related to a specific financial instrument.
The contents of this informative message are the result of the free interpretation, evaluation and appreciation of Pharus Asset Management SA and constitute simple food for thought.
Any information and data indicated have a purely informative purpose and do not in any way represent an investment advisory service: the resulting operational decisions are to be considered taken by the user in full autonomy and at his own exclusive risk.
Pharus Asset Management SA dedicates the utmost attention and precision to the information contained in this message; nevertheless, no liability shall be accepted for errors, omissions, inaccuracies or manipulations by third parties on what is materially processed capable of affecting the correctness of the information provided and the reliability of the same, as well as for any result obtained using the said information.
It is not permitted to copy, alter, distribute, publish or use these contents on other sites for commercial use without the specific authorization of Pharus Asset Management SA.
Back to all news

Related News


What impact will inflation have on corporate earnings?


China: opportunities within the revolution


The BoLe Chronicle | August 2021


Post-COVID, new opportunities for Biotech


Pharus Sicav Best Regulated Companies distributes the third dividend


The BoLe Chronicle | May 2021


Inflation: temporary or not?


The BoLe Chronicle | April 2021


Pharus Management Lux SA awarded by Global Brands Magazine