MENLO PARK, Calif. (CNN/Money) -
The Harvard Business Review and everyone else in the tech-stock dodge, myself included, has been asking the same question over and over: Does Tech Matter?
Here's a better one: Does it matter that tech is really expensive?
Armchair analysts -- and a goodly number of pros too -- think not. And a trenchant new report by UBS tech strategist Pip Coburn suggests just how powerful the conventional wisdom might be.
Coburn first takes two whacks at arguing that tech stocks are by no means cheap. At their current valuations, he argues, investors are assuming tech-company earnings will grow in a range of 13 to 20 percent. Coburn's assessment of the likelihood of this being the case? None ("with very high conviction").
Next he looks at the price-earnings ratio of tech companies, at an average of about 30 at the end of July. He points out that the historical average tech P/E -- and remember, that average includes the 1990s, when companies actually were growing quickly and earning gobs of money -- is about 28, with a range between 20 and 44.
Again, tech looks expensive by those measures.
Yeah, so?
But Coburn still doesn't see tech falling. Here's his logic.
"In tech, when the market is heading towards extremes -- i.e., a 30 to 40 percent rally in six months -- folks tend to look the other way when it comes to valuation," he writes.
"Was tech [the Nasdaq] 'expensive' at 3,000 back in 1999? You bet. But that didn't stop it from going to 5,000+ just five months later. So, again, here at a 'modest' 1,650, is tech overpriced? Sure. But is there anything coming in the next...say, 15 months or so...that will shake us from paying this much? We don't think so."
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Coburn ends with a comment that fits in nicely with the debate on whether tech matters anymore. "It will be a prolonged process before investors fully accept the lack of significant growth drivers in tech. We will need to encounter factors that shake people out of paying so much. We don't see such factors on the near-term horizon at the moment."
Translation: After all we've been through there is still, understandably, plenty of excitement for tech companies and tech stocks. They simply aren't ready for fundamental analysis yet. The time is coming. It's just that no one knows when.
Bottomline-let, Part I: Microsoft does Europe
I had one thought upon reading Wednesday that the European Union plans to fine Microsoft for being its lovably monopolistic self: I thought Europeans went on vacation during August.
Bottomline-let, Part II: Intel does buybacks
Astounding fact from Intel's 10-Q securities filing Wednesday: "Since the [stock repurchase] program began in 1990, the company has repurchased and retired approximately 1.8 billion shares at a cost of approximately $32 billion." They bought back more value in shares than most companies have ever made.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.
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