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Is Silicon Valley Heading Toward Another Tech Bubble?
Is Silicon Valley Heading Toward Another Tech Bubble?

By Chris OBrien
May 5, 2014 9:33AM

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Venture capitalists and entrepreneurs insist that the Silicon Valley tech economy is not in bubble territory. Yes, they misjudged just how fast the Internet would change the world a decade ago and let things get a little bit out of hand. But this time, they say, the revolution of mobile and cloud services justifies big, bold bets.
 



Venture capital rising to levels not seen since 2001. Companies with no profits going public. Billions of dollars being paid for start-ups.

These and other signs that the tech boom may be taking an irrational turn are leading some notable investors to utter the dreaded word "bubble," waking up the ghosts of an era many in Silicon Valley would prefer to keep buried.

Has Silicon Valley once again lost its collective mind?

Hedge fund manager David Einhorn thinks so. "There is a clear consensus that we are witnessing our second tech bubble in 15 years," he warned in a note to his clients last week. "What is uncertain is how much further the bubble can expand, and what might pop it."

Venture capitalists and entrepreneurs insist that the Silicon Valley tech economy is not in bubble territory. Yes, they misjudged just how fast the Internet would change the world a decade ago and let things get a little bit out of hand.

But this time, they say, the revolution of mobile and cloud services justifies big, bold bets. And most of the companies going public are profitable, with real businesses that are transforming the way we live.

To some tech insiders, the region's economy is in a "Goldilocks" moment. Not too hot. Not too cold. Enough of a boom to be just right.

Greg Becker, president and chief executive of Silicon Valley Bank, isn't so sure. "There's absolutely a frothiness out there in certain sectors," he said. "With some of these companies, we've never seen growth rates like this before. How much is that growth worth? What's the value? That's what people are trying to get their arms around."

During the dot-com bubble of 1999 and 2000, Silicon Valley believed the Internet was causing such a rapid revolution that there was ample justification for pumping billions of dollars into half-baked start-ups that went public by the hundreds.

Tech executives insisted there was no bubble -- that it was a "new economy" -- right up to the moment when their hubris drove the region into an economic abyss.

The tech-heavy Nasdaq composite index fell from 5,046.86 to 1,114.11. Silicon Valley saw 200,000 jobs evaporate overnight. But the bubble grew so large that its bursting also dragged the national economy into recession. Silicon Valley was chastened and saw its credibility shredded.

It's taken almost a decade for the region to regain the trust it squandered, particularly with Wall Street and investors. And the valley is eager to show that it has learned all the right lessons. (continued...)

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© 2014 Los Angeles Times (CA) under contract with NewsEdge. All rights reserved.
 

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