Fears mount over tech bubble as Tesla and Bitcoin surge to new records

Unlike most industries, tech managed to not only shake the impact of the pandemic but thrive under it. Runaway initial public offerings like that of Airbnb and DoorDash capped off a year that demonstrated the western world’s reliance on companies like Amazon and Zoom.

“Last year the capital gains in US technology shares dominated returns while other sectors were left lagging,” says Simon Edelsten, a fund manager at British investment group Artemis. 

“Such a concentrated market can lead to investors running winners regardless of valuation and a bubble forming.”

Edelsten says that some of the highest-profile tech companies now had valuations that were “difficult to justify” in terms of their potential to make considerable profits over the long term.

“However, we live in a period of extraordinary advances in technology accelerating growth prospects across a range of industries where valuations are less stretched,” he says.

A slew of new apps that allow people to buy and sell stocks has also led to a raft of new investors pouring into the sector. Programs like eToro and Robinhood have opened markets up to a whole new audience of people looking to invest their savings to beat inflation.

“The growth of online apps, a more affluent middle class, and an awful lot of money that’s not earning anything, is going into areas of the market that it probably wouldn’t be going into if we weren’t in this kind of situation,” says Michael Hewson, chief markets analyst at CMC Markets, of the rise of retail investors during the pandemic.

Hewson says he can’t “help the feeling that there is a certain element of a bubble”.

Edelston agrees, insisting there were new ways for “less experienced individuals to invest” and that it encouraged “crowd behaviour”.

The wave of new retail investors has also helped Bitcoin reach record highs this year. Over the past month Bitcoin’s average trade volume stood at $39.1bn – more than the volumes at Apple, Microsoft, Amazon, Facebook, and Alphabet combined.

Bitcoin crossed $40,000 in value for the first time in its existence on Thursday with the market capitalisation of the currency now at around $760bn.

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