Dot-Com Bust Era (1995-2000)
During the dot-com bubble, many tech companies had little to no earnings growth. For example, Pets.com, one of the most notorious failures of the period, had no significant revenue or earnings growth before it went bankrupt. Amazon, one of the survivors, had negative cash flows and was far from profitability, with its stock price plummeting from around $100 to $7 after the bubble burst. Barron’s reported that 74% of Internet companies had negative cash flows and little realistic hope of profits in the near term. Most of the tech companies during this era had little to no fundamentals.
Earnings Growth of the Magnificent 7 (2019-2024 Q1)
The “Magnificent 7” refers to seven major US tech companies: Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Tesla, and Meta (Facebook). These companies have displayed robust earnings growth from 2019 to 2024, which contrasts sharply with the tech companies during the dot-com bubble.
1. Apple (AAPL): Apple’s earnings grew by approximately 9% annually between 2019 and 2024 Trailing Twelve Months (TTM). This growth has been fuelled by strong iPhone sales, expanding services revenue, and increasing margins on hardware.
2. Microsoft (MSFT): Microsoft reported earnings growth of about 14% annually during the same period. The company’s cloud computing division, Azure, and its enterprise software products have been key drivers of this growth.
3. Alphabet (GOOGL): Alphabet saw its earnings rise by roughly 14% annually from 2019 to 2024 (TTM). The company’s dominance in online advertising and the growth of its cloud services have underpinned this steady earnings increase.
4. Amazon (AMZN): Amazon’s earnings increased by about 21% over these years, driven by its e-commerce business and the rapid growth of Amazon Web Services (AWS), its cloud computing arm.
5. Nvidia (NVDA): Nvidia experienced an impressive earnings growth of approximately 62%[1] from 2019 to 2024 (TTM). This surge was driven by its leading position in graphics processing units (GPUs) for gaming, AI, and data centres.
6. Tesla (TSLA): Tesla’s earnings skyrocketed by 42% during this period. The company’s growth has been propelled by its electric vehicle sales, expansion into new markets, and advancements in battery technology.
7. Meta (META): Meta’s earnings grew by around 14% between 2019 and 2024 (TTM), despite facing challenges related to privacy changes and increased competition. The company’s investments in the metaverse and continued growth in its core social media platforms contributed to this performance.
Comparison and Justification
These growth figures reflect a fundamental difference between the current tech giants and the speculative companies of the dot-com era. The Magnificent 7 has posted strong and consistent earnings growth, supported by robust business models and leadership in high-growth areas like cloud computing, AI, and digital advertising. This substantial growth provides a solid foundation for their high valuations, unlike the tech companies of the late 1990s, which were often overvalued based on speculative potential rather than real earnings.
Conclusion for US Mega Tech Stocks Valuations
The comparison between the current valuations of mega tech stocks and the dot-com bubble era highlights key differences. Unlike the dot-com era, today’s leading tech companies generally have robust earnings growth and strong fundamentals.
The Magnificent 7 have demonstrated resilience, innovation, and strong fundamentals, setting them apart from their predecessors. While there are always risks in the markets, the robust financial health of these companies suggests that they are better equipped to withstand volatility and continue driving value for investors.
While the Magnificent 7 have shown impressive growth and resilience, no single sector or group of companies is immune to market fluctuations. The lessons from the past—whether from the Dot-Com bubble or other market cycles—underscore the value of diversification.
As these tech companies continue to dominate, it’s crucial to balance their promise with a globally diversified approach, ensuring that your investments are resilient and aligned with your long-term life goals.
[1] The average EPS Growth Rate is determined by analysing the data from 2019 to 2024 (Trailing Twelve Months) provided in this link.
The writer, Lim Choon Siong, is Research Analyst at Providend Ltd, Southeast Asia’s first fee-only comprehensive wealth advisory firm.
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