# Is the Tech Sector Blowing Bubbles Again?

The Nasdaq Composite Index is almost twice as high as it was a year ago. Apple (s aapl) shares have also doubled in value in the past year, and its market cap is edging towards $250 billion, making it the third most-valuable company in the world. Meanwhile, Facebook is being valued at anywhere from$20 billion to $50 billion, game maker Zynga is reportedly worth$5 billion, Groupon just closed a financing that values it at $1 billion, and corporate buyers are said to be circling startups like Foursquare with offers of$100 million takeouts. Are things getting a little too bubbly in the tech sector?

Seth Goldstein thinks they might be — the angel investor and founder of SocialMedia.com and Stickybits says that his “spider sense is tingling” and that he feels “something big is about to pop, something on the AOL-buys-Time-Warner richter scale.” He writes:

I remember that Monday morning, January 10, 2000. The day that AOL announced it was buying Time Warner…I was working at Flatiron Partners, and Fred, Jerry, Bob and I had a standing Monday morning breakfast at the Mayrose Diner. We all looked at each other that Monday morning with our mouths agape, shaking our heads in amazement that this was really happening. In retrospect, that deal was a watershed for the Internet. It announced that new media was going to be bigger than old media. It also marked the final inflation of a bubble that popped painfully only a few months down the road.

So are we brewing another bubble of AOL-Time-Warner-like (s aol) proportions? It’s probably a little early to be ringing the alarm bells, as even Goldstein admits. Facebook and Zynga and Foursquare haven’t even gone public yet, so whatever excessive valuations are occurring (if they are) are happening out of the public markets and in the rarefied air of private venture capital. It’s true that the impetus of those valuations frequently spills over into the public markets and can wind up taking retail investors along for a nasty ride, as it did in the late 1990s, but we are not even close to being there yet. And while the Nasdaq may be up 100 percent from last year, that was a recessionary low — the index is still barely half what it was before the blowout of 2000.

That said, it is worth being reminded of how these bubbles are inflated: a breath of venture capital air here, another over there, and soon the process has taken on a life of its own. Goldstein’s former Flatiron Partners colleague and prominent tech VC, Fred Wilson, says in a comment on the post: “I remember that morning at the Mayrose, Seth. It is gone now, as you know, but Internet mania is not.” We should keep that in mind as we count our virtual Facebook, Zynga and Foursquare winnings.

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Post and thumbnail photos courtesy of Flickr user zachstern