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Technology stocks is in a rut. Investors are worried the sector has been in a bubble since the 2020 pandemic, and that the current weakness is the start of a great reckoning.

Analysts at Morgan Stanley on Tuesday drew comparisons to 2000, the last great tech bubble. Their research says investors are still paying too much for innovation. That assessment is only half true.

Scalable innovation is still rare, and now historically inexpensive.

A SpaceX rocket carried 53 small satellites on May 13 into low earth orbit. The accompanying booster detached at the edge of space, performed a complex telematic maneuver, then landed autonomously on an unmanned drone ship 300 miles off the coast of California. It was the 120th successful landing of a SpaceX reusable booster. The private Hawthorne, Calif.-based company then proceeded to perform this complex operation two more times through the course of the next week.

This is an age of miracles and wonders.

Investors have mostly gotten the era right. The valuation of privately held SpaceX has stretched to $125 billion, according to a report published in May at Bloomberg. The problem, like in 2000 is that too many non-scalable innovations became overpriced.

Virgin Galactic (SPCE) was a special purpose acquisition company hyped into the stratosphere by Wall Street investment firms. The space tourism firm was supposed to build a brave new business by launching well-heeled humans into the heavens.

Morgan Stanley analysts in 2020 said the shares were worth $70. Virgin Galactic stock did rally to $62 last February before reality set in: The market for space tourism isn’t scalable, and the fledgling company didn’t have the high turnaround rockets even if rich people were lined up in droves. Shares crashed and burned. The current price of $7 is more in keeping with value of the actual business.

The research firm Audit Analytics notes that the average SPAC is down 60% from its highs. Many others are warning they will go bust.


Analysts at Morgan Stanley are now conflating these smaller, non-scalable businesses with big technology platforms. It’s a reckless analysis that negates the importance of scale.

Bill Gates, the founder of Microsoft (MSFT) appeared in 1995 on the David Letterman Show. When Gates gushed about the promise of the internet Letterman pointed out that everything then possible online could easily be duplicated with existing technology. To Letterman’s untrained eye, the internet seemed needless because he couldn’t see the benefits of scale. When Gates argued that media could be backed up, and offered on demand, Letterman deadpanned “have you ever heard of a tape recorder?”

Bearish analysts are making the same nonsensical arguments today about more important, scalable innovations.

The rapid advances in cloud networks have made super computer level processing available on demand, and it is changing everything. Disaggregation moved computing might into figuring out rocketry, transportation, logistics, biology and almost every other advanced technology field. Several public and private companies are beginning to emerge as logical winners. And thanks to the technology rut, many of those businesses are cheaper than they have been in years.

SpaceX is a private enterprise founded by Elon Musk. The company is launching thousands of small satellites that are bringing highspeed, low latency internet at reasonable prices to unserved parts of the globe. There is no current way for average investors to acquire shares, yet it is possible to buy stock in Tesla (TSLA), Musk’s other business.

The electric vehicle maker is a major technology company masquerading as a car business. The scalable wonder in full self-driving, cloud-based software available to hundreds of thousands of Teslas on demand. Full automation is a game-changer. It is a safety leap, while making fleet logistics several magnitudes cheaper.

There have been excesses in the tech sector. Some still exist; however, investors are wrong to conflate small, non-scalable tech businesses with the large innovative platforms. Many of these businesses are now historically inexpensive.

It is probably still too early to move fully back into tech. The shares of many important businesses, even Tesla, remain well below key moving averages. Yet, investors should be aware that tech is not a monolith.

It’s time to put scalable platforms like Tesla on your radar.


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