Nasdaq: Then and Now

March 12, 2015

The NASDAQ Composite recently reached 5,000 for the first time since the days of the “Tech Bubble” back in March 2000. Given that IPO activity has picked up substantially over the last few years and Silicon Valley is booming again, investors have begun to wonder whether we are witnessing a “Tech Bubble 2.0”. This week’s chart attempts to answer that question by looking at how the NASDAQ in 2000 compares to the NASDAQ today.

Back in 2000, the NASDAQ Composite included over 4,500 listed companies compared to roughly 2,500 companies today. At the beginning of the millennium, companies were commonly going public with no real business plan and often with no revenue and little cash on the balance sheet. As a result, back in 2000, the NASDAQ index as a whole actually had negative earnings.¹  Contrast that market environment with today, when the NASDAQ trades around 30x earnings and most new public companies have both revenue and profits. All in all, we aren’t saying there is no bubble, but this time around the fundamentals look much more sustainable.

¹The gap in the P/E ratio line on the chart is due to the negative earnings during this time frame.