We are deep into the tech bubble now. I remember the feeling from last time. It is like missing a train — a sense that everyone else is going somewhere extremely important and you're missing out.
You can see this bubble in crypto-currencies and the stock market most clearly. The companies they call FANG — Facebook, Amazon, Netflix and Google — have swollen like rivers in flood.
Google (now officially called Alphabet) is the grandpa of the group. Its stock has gone up from $400 to $1200 in the past five years. A very rapid tripling, but not so impressive compared to the rest.
Amazon has gone from $260 a share to $1600 — a sixfold increase in five years. Facebook has gone from $26 to $181 — a near sevenfold jump.
Netflix though takes the prize for growth, shooting up from $26 to $320 in five years — a more than twelve-fold increase.
As you can see on the charts, Amazon and Netflix shot up especially fast especially recently. What's interesting is they are not the ones making lots of money. While Google and Facebook made $28.5 billion in profit last year between them, Amazon and Netflix made $3.5 billion.
People are buying these stocks not because of where they're at, but where they think the companies are going. They expect a future where Netflix and Amazon are dominant.
This is the basis of the bubble. Expectations. It is driven by hope for the future and fear of missing out. Investors are all trying to get in early for companies they think will rule the world in a few years. While that might be possible for a company like Amazon, the bubble is much broader than just it. It includes hundreds of listed companies, cryptocurrencies like Bitcoin, and more besides.
Companies not traded on the public stock market are also valued at crazy levels. Here's a graphic showing what the tech industry calls "unicorns" — privately held technology companies valued at more than $1 billion. The name was invented back when these were rare, but now they are more like pigeons, flocking all over Silicon Valley.
Any signs of trouble in paradise?
In theory, everybody knows tech companies and cryptocurrencies can go rotten. Savvy investors have watched dozens of heavily hyped Next Big Things fail or fall short.
Groupon is probably the best example. Turns out group buying websites were something of a fad.
People were excited by Twitter and Zynga too. Twitter had lost two-thirds of its value until the US President took to the service with gusto, giving its stock price a bump. Mobile games maker Zynga, meanwhile, has gone nowhere fast.
The situation at the moment is that interest rates are so low, and loans so freely available, that companies have little pressure to stop borrowing money and start making it. Companies with scant chance of dominance can still float onward, losing money each year. The absence of crushing insolvency creates the impression that the future is still bright.
This tech bubble, though, is even bigger than it seems. It is not just about stock price speculation or expectations of future earnings at a few companies. It is about a major shift in belief in technology.
We are at a point in history where many people hold extreme views about the future, both good and bad. Just about everybody seems willing to believe the world will be changed completely, quickly and easily, thanks to technology.
Suddenly people are taking seriously all the following ideas:
• Plans to colonise Mars;
• Driverless cars taking over our cities within just a few years;
• Flying cars;
• Robots putting practically everybody out of work;
• Artificial intelligence becoming so powerful it destroys us;
• Cryogenics letting us come back from the dead;
• Crypto-currencies taking over from money.
This is not just about people speculating on the future of a few companies. This is about believing the life of humans is about to change faster than ever before in human history. It is like a belief that we're living through the agricultural revolution, the Renaissance and the Industrial revolution all at once — and all in fast forward.
Why so credulous?
Why do we suddenly believe technology will remake the future so utterly and swiftly? Partly because of a cognitive bias called the recency bias. We remember the recent past much better than the time before it. And in the recent past, technology has wreaked havoc on modern life. You're reading this on a website that didn't exist before 20 years ago.
In the past 20 years, the world has changed a lot. And technology has been a big part of it. But that doesn't mean technology can change everything. The personal computing technology we all interact with daily has made it very obvious to us that technology can change very fast.
But this is a classic case of selection bias. If we try to measure the pace of technology by looking at the things that are changing very fast, we will get the wrong picture. We need to look elsewhere too.
If you tried to measure the pace of technology by looking at commercial aviation, say, what you'd discover is a lack of obvious progress. We used to have supersonic commercial aviation, but nowadays most of us fly around in Airbus A320s (a plane launched in the 1980s) and Boeing 737s (a plane first launched in the 1960s).
You can get a similarly glum feeling if you look at progress in fighting Alzheimers disease or Multiple Sclerosis. There hasn't been any, despite a huge amount of effort. Likewise with the common cold — and we seem to be losing the battle against bacteria as they develop antibiotic resistance.
I don't mean to say that technology won't change. It can and surely will. Just to say that there is a certain wildness to the predictions of the future at the moment. People seem willing to believe just about anything, so long as it has a technology angle.
When the bubble finally pops, it will take with it not only the valuations of some of the biggest technology companies, but also a lot of utopian visions of the future.