Tech Stock Valuation

in an investment environment where decade-long, double-digit EPS growth is

rarely achieved, conventional expectations of 20–50% long-term EPS growth for

tech stock favorites can only be described as unreasonable. The extreme valua-

tions accorded to the Nasdaq 100 stocks in early-2000 should have caused

seasoned investors to ask if the extreme market capitalizations were indicative of

a stock market bubble.

Many financial economists and market observers argue that stock market

prices sometimes reflect a bubble component. These critics of efficient markets

theory point out that conventional theory cannot account for unusual periods of

volatility in security ...