We are seeing a tech bubble and investors are going to get burned.
Want to see signs of the bubble? Social networking site LinkedIn which is due to float increased its value by $1 billion in just a few days, making its initial public offering of stock the biggest by a US Internet company since Google Inc. went public in 2004. All the signs point to a social media bubble.
Writing in the Atlantic Wire, Ray Gustini says social media companies are dangerously overvalued. It's all reminiscent of the tech bubble in 2000. Gustini writes: "The challenge facing social media companies today is the same one that plagued the dot-coms in 2000: where does your revenue come from? The inability to answer that question caused the first bubble to burst."
The Economist warns us that investors should beware, particularly because much of this bubble is being driven by China. "The froth in China's web industry could also lead to unrealistic valuations elsewhere. And it may be China that causes the web bubble eventually to burst. Few of those rushing to buy Chinese shares have thought through the political risks these companies face because of the sensitivity of their content. A clampdown on a prominent web firm could startle investors and prompt a broader sell-off, as could a financial scandal."
Let's hope this batch of investors have learned one lesson from the 2000 crash: they should sell before it's too late,
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