Tech Valuations Remain Notably Below 2000 Bubble Levels, But Investors Should Take Profits - Bernstein

In a note issued to clients today, Bernstein's tech analyst Toni Sacconaghi addressed how the recent surge in tech stocks compare with the 2000 bubble. According to him, the magnitude of the tech run-up and valuations today remain notably below 2000 bubble levels.

In the beginning of 2000, the “dot com bubble” burst to have NASDAQ index subsequently decline 67%. Sacconaghi acknowledges worries on the side of investors, and argues that investors "begin to take profits on lower quality, expensive names and selectively look to add tech value names".

"We note that the Nasdaq index appreciated an average of 43% per year (including 288% in the final year) in the seven years prior to the bubble bursting vs. an average of 23% over the last seven years," Sacconaghi wrote in a note.

Sacconaghi notes that tech stocks are still trading at their highest levels since the bubble, in addition to the fact that tech sector earnings growth (15%) is expected to significantly lag the broader market (31% ex tech) in 2021.

"Perhaps most concerningly, the valuation disparity between growth and value stocks is at extreme levels. We advocate a market weight in tech, and that investors begin to take profits on lower quality, expensive names and selectively look to add tech value names," he concludes.

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