In the late 1990s an irrational run-up in speculative investments around internet-related stocks turned into what became known as the dot-com bubble, which subsequently burst, dragging on global economic growth and setting back technological development.
Will history now repeat itself?
It is a question that a brave few have begun to ask since last year, as the global investment community became increasingly enamoured with technology plays and poured billions of dollars into the private enterprises driving the next tech boom.
Rewind almost 20 years and it seemed like global investors were betting on any company with a “.com” or an “e-something” in their business plan. Now, investors appear just as excited about any company that claims to be blazing trails in artificial intelligence, big data, cloud computing, advanced materials, or internet of things.
Speculation about another investment bubble is not groundless. There are similarities with the turn-of-the-millennium era – the proliferation of young startups, more loss-making tech companies in the stock market, sky-rocketing market valuations, among others.
Indeed, as far as valuations are concerned, today’s tech bubble might be more serious.
Uber, the mega tech unicorn with a $68 billion valuation on some calculations, has yet to make a profit. In the last three months of 2017 alone, the ride-hailing app lost a stunning $1.1 billion on just $2.2 billion in revenue.
It is safe to assume this is likely the same for Didi Chuxing, China’s largest privately held company with a $56 billion valuation based on its latest funding round in December last year.
The ride-hailing app has never revealed its financial details, although some analysts estimate that it incurred a loss of $1 billion in 2015 after the company spent excessively on user subsidies.
China’s rapid pace of innovation has turned it into one of Silicon Valley's biggest competitors in the marketplace of ideas. However, it could also be here where the biggest tech bubble lies, for some of its unique business models like bike-sharing, food delivery, and live-streaming are yet to prove sustainable and profitable.
Speculation that there is another tech bubble in the works is still barely audible amid the din of the optimists, who argue that modern tech companies are backed by solid businesses and the huge glaring potential to monetise their products and services.
After all, Amazon.com Inc once had a crazy valuation that could not be justified by the money it was losing at the time and could easily have gone under when the dot-com bubble burst, and yet last year delivered a $2 billion profit.
For one, the intrinsic value of modern tech companies is their access to a gigantic user base. As the world is gradually changing from an asset-based economy to one driven by information and accessibility, a far-reaching network and huge traffic flows could yet provide the basis for monetisation, either in terms of sponsorship and advertising, or other add-on services.
This perhaps explains why e-payment companies are willing to pay billions of dollars giving away free coupons, or why ride-hailing apps offer free rides. It is all about grabbing a bigger market share.
The ultimate success of the internet, and the unmistakable changes it brought to the world, somehow suggests that dot-com investors made a right pick on the industry, but perhaps the wrong choice of companies, even if a few rare start-ups like Amazon and Alphabet Inc (Google) have since gone from strength to strength.
However, stock market investors are unlikely to repeat these failures, optimists say. This is because, they argue, the start-up world has matured and competition for venture capital has been more intense, effectively squeezing out less feasible players and ensuring only a handful of players survive through the process.
That is shown by the fact that most new industries are dominated by one single company – Uber for ride-hailing, Airbnb for home-sharing, Amazon for e-commerce, etc.
China is yet to develop such monopolies in many industries, but is not far from it. Consolidation is taking place in many sectors that effectively creates industry leaders such as Mobike and Ofo, which controls over 90% of the country's bike-sharing market.
Meituan-Dianping, the e-commerce app formed by the merger of group buying website Meituan and restaurant review website Dianping, has taken up 86% market share of China's in-store dining, and 61% of on-demand food delivery market.
These Chinese startups have gone through more rigorous competition in their early stage of development than their counterparts in the West, industry sources have said.
"There is real cut-throat competition for Chinese startups in order to survive," one industry source said. "Chinese firms are used to intense competition. If you put 100 Chinese startups and 100 Western startups in the same market, it is clear that most of the Chinese firms will survive,"
For stock market investors, buying into a next-generation tech company literally equals betting on the business model behind it. As long as the business model works, your investment works.
But never say never.
Some revolutionary technologies such as AI, advanced materials, and renewable energies are still far from commercialisation, let alone impacting everyday lives.
And even if these ground-breaking technologies can be ultimately successful, it will likely be several years, or even decades from now. In the meantime, anything can happen.
This suggests that while we may now be further away from an investment bubble than two decades ago, the risks are always there.