In the spring of 1970, the New York Stock Exchange’s technology index, the NASDAQ, collapsed. 54 years ago, technology companies at the height of their glory saw their value evaporate by 80% in three months. It was the first big “techno crash”. Can it help predict the next one?
Obviously, these moments of great stock market volatility are the saddest episodes in the history of the stock market, which nevertheless fares admirably well, in the end. But a crash of the magnitude of that of 1970, which almost no one remembers anymore, allows us to draw lasting lessons.
If 1970 is a long time ago in our memories, the bursting of the Internet bubble in 2000 is a little fresher. At that moment, we thought we had reached the paragon of ridiculousness when we learned that it was possible to buy pet food on the Internet. Twenty-four years later, no one is offended by being able to order dog food on the Internet. It’s even rather banal.
From one bubble to another
A consequence of the tech explosion in 2000 was the crushing, the following year, of the telecommunications sector. In Canada, Nortel paid the price. The gloom caused by the bankruptcy of this (rare) Canadian technological flagship stretched over almost the entire following decade, a period during which children were discouraged from studying in sectors with a vaguely technological vocation, deemed to have no future by parents who had just seen their pension funds melt like snow in the sun. Nortel was a favorite of Canadian portfolio managers…
(Before the financial crisis of 2009, the Quebec IT and multimedia sector was already forecasting a major labor shortage by 2020 which would slow down its growth, due in particular to the lack of interest in technology from students and governments burned by the Internet bubble.)
In the months leading up to 2001, companies were racing to extend fiber optic cables across the globe in preparation for the emergence of a high-speed Internet that didn’t really exist yet. This was expensive and required colossal investments, hence the importance of having the support of the Stock Exchange. And for shareholders to get on board, they were promised an exceptional and sustainable return, almost endless.
Heavyweights
The stock market crisis of 1970 and the telecom crash of 2001 have one important thing in common: in both cases, very large companies created enormous euphoria among investors, then paid the price.
Before 1970, the giants Hewlett-Packard, IBM, Texas Instruments and others were promising quarterly and almost eternal double-digit returns, provided they were allowed to take control of the lucrative desktop computer market. It was when IBM was accused by the American courts of stifling the market by selling both the hardware and software that its customers demanded that this bubble burst.
IBM was mired in legal troubles for the next decade, and it was ultimately Intel and Apple in the early 1980s that moved the technology industry forward, launching the era of personal computing. and the PC.
Microsoft, as we know the story, was not lurking very far and also filled its pockets. Microsoft also subsequently experienced its share of problems with the law for reasons of monopoly… This was just before the techno bubble of 2000.
Bubble, fly away!
Correlation does not mean causation. But when we started to hear about a monopoly situation in tech, in a context of stock market euphoria, we also experienced a major crisis around the same time.
These days, monopolies abound, which in itself is worrying: Amazon, Apple, Google, Meta and others are criticized, especially on the left, but also on the right, for having a stranglehold on their own sector which prevents any credible competition from establishing itself.
At the same time, multinational technology companies have discovered a new way to create excessive enthusiasm among investors. You guessed it: artificial intelligence. She’s not the only one to have said it, but AMD CEO Lisa Su summed it up in as few words as possible: AI, she says, will cause economic benefits major for at least the next decade. It’s the next goose that lays the golden eggs!
AMD, Arm Holdings, Intel, Microsoft, Nvidia, Qualcomm and more have seen their stock values reach stratospheric regions in recent times.
Coincidence? Maybe. Already seen ? Some say so. “Investor appetite has transformed into euphoria and is pushing prices and values into bubble territory,” summarizes economist David Rosenberg. He’s not the only one to say it.
Rosenberg really wants AI to be a bubble, and for it to burst as soon as possible. For him, it’s the quickest way to curb inflation, skyrocketing housing prices and everything else that’s making life so difficult for many young adults these days.
It’s not all bad about bursting bubbles: the months following the tech crashes of the last sixty years were very good times to buy a first home. Funny coincidence!