Is the sky falling? For some cloud investors, the market has not been too kind and many are starting to rethink their investment strategies. Bessemer Venture Partners recently produced a startling graph that charts the BVP cloud computing index. In the past 6 weeks, this chart shows the dramatic retreat of many cloud stocks that were considered staples of the cloud investing community. For example, SalesForce’s stock price has lost nearly 20% in one month. What can we interpret from that data?
First we must ask ourselves, is this retreat just a simple correction of the market or is it a sign of things to come? If you ask David Kostin, the chief US equity strategist at Goldman Sachs, he believes that the retreat is just a simple correction in the market. “Tech stocks aren’t overvalued,” claims Kostin.
Other analysts have differing opinions. Jay Ritter from the University of Florida mentions, “Of the 48 tech and biotech IPOs on Wall Street this year, 43 were in companies that had yet to show a profit.”
Some analysts look at recent cloud acquisitions and venture capital investment valuations as being bloated and unrealistic. Facebook’s acquisition of WhatsApp is a prime example. Research shows that Facebook paid $42 per user of the app when the application generates $1 a year per user only after the first year the consumer uses the app.
So what’s the real answer to this quandary? It really depends on who you ask. While analysts at Goldman Sachs do not see a tech bubble coming, other analysts mention that all bubbles aren’t the same. Most investors look at the year 2000 as the poster child of a tech bubble. Many experts feel that this is like comparing apples to oranges. For example, in year 2000, mobile devices being connected to the internet was just a fantasy and most consumers were using dial up internet. So what will happen with cloud stocks? We suggest you do your own research using conventional investing wisdom and consult someone you trust when making such decisions.