Tech bubble fears overblown, says man who called dot-com crash
Dr Alan Ahearne, the man who predicted the 2008 crash, says warnings of another 2000-style dot-com crash are overblown.
Despite the fact analysts believe the signs are too good to be true for some of the world's biggest tech companies, with many - including Uber and WeWork - yet to make a profit, the Galway-based economist says the key difference between 2000 and now is that money is chasing products and services, not 'pie in the sky' ideas.
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"I don't find the comparisons between the dot-com bubble in 2000 and the market today convincing," he says.
"Back then, companies had no revenues and no sales, all they had were ideas, and their shares were jumping hundreds of dollars on the Nasdaq from their offering price with no track record. Yet people still wanted to buy them. It was absolute mania."
He says in a "classic case of standing around the water coolers talking about dot-com shares companies they had bought", investors behaviour was "not unlike the property bubble. Pure speculation".
During the latter half of the 1990s, the internet created a euphoric attitude toward business, and investors assumed a company which operated online was going to be worth millions. But many transpired to be overvalued and the crash cost investors $5trn.
Over the past year, concerns have been growing about the losses of companies such as Uber and WeWork, while industry experts have voiced worries about an 'on-demand' bubble affecting big name brands such as Airbnb, which is planning to double its profits in Ireland over the next five years.
But although the likes of Uber and WeWork are losing money, Dr Ahearne explains these companies "have products and services to sell and their revenues are growing very rapidly - that's what makes them attractive".
He says the expectation is "they are also going to be able to reduce costs by scaling up".
He says although people are still taking risks "this is not like Coca-Cola or other blue chip companies - they are hi-tech, many with uncertain futures, but at least they have proven revenue generation and actual activity and they are actually producing stuff that people want".
But he warned: "That doesn't mean that these shares are all correctly valued - they may not be. Some of these companies that are being listed will probably go on to be very profitable and some of them won't, but that's the normal cut and thrust of business. So there probably are risks but it's not that the share price has been driven by some sort of frenzy or mania that we saw in the late 1990s and early 2000s. I don't see it that way."
Looking at Ireland as the tech hub of Europe, with the world's biggest social media companies based here, he adds: "Google and the bigger tech companies in Ireland are profitable and they have proven earnings records."
But he said if a global downturn were to happen, the tech stars would not face a 'Wile E Coyote moment'.
"It might be that they have geared up and hired lots of people in the expectation that they are going to expand. They are network-driven businesses and the bigger the network the better, and if something happened in the world - a trade war, for example, that caused a global downturn - then they might not grow as they are expecting to grow and they may have to reduce the workforce but I don't see these companies falling off the face of the earth," he said.
On the overall health of the economy, he says: "The economy is still very strong. The trade war risk is still there because we don't know how it will pan out and there are risks with Brexit and the US expansion that has being going on so long. There will also be risks next year with Trump's fiscal stimulus warning, but that's what they all are - risks.
"There is nothing obvious that is sure to explode any time soon that will slow the economy."