From the late 1990s to 1999, Microsoft’s stock price rose from about 60 cents to about $60.
This was a gain of about 10,000%, enough to convert $10,000 into $1 million.
Then the tech bubble burst and the stock fell 60%. After basically going nowhere from 2001 to 2007, the stock crashed in 2008 along with everything else.
The stock was down 74% from its all-time high since late 1999 to the market’s low in early 2009:
The company grew from a market cap of $613 billion in 1999 to $135 billion by March 2009.
By any reasonable measure, Microsoft is one of the most successful tech companies ever created. It’s now a $2+ trillion behemoth.
But you can see from the chart that the bad fall took longer 16 years To break even with the 1999 high.
Microsoft isn’t the only one experiencing an extended decline from the dot-com bubble high.
Amazon crashed more than 90%, still broken in the blink of an eye 7 years later, before the onset of the great financial crisis to the peak of the market in the fall of 2007:
Amazon spent 99.9% of the time up to 2010 from 1999 levels.
Qualcomm did not revert to 1999 price level as of May 2019:
Cisco still hasn’t come close to reclaiming early 2000s levels:
Same with Intel:
These are some of the biggest, most successful technology companies of all time, yet their stock prices have gone through decades of declines.
Obviously, the starting point here was probably the peak of the biggest stock market bubble we’ve ever seen in US stocks.
But tech stocks are prone to these boom-bust cycles because innovation always causes bubbles. We just can’t help ourselves.
I’m not saying that the tech stocks that are being killed today are in for a similar extended winter. But growth investors should also not assume that all these stocks are down 50-80% and will soon go back to new highs.
The Nasdaq Composite was up 41% (450%) year over year from 1995-1999. This was up 25% per year (205% in total) from 2017-2021. So we didn’t reach the level of craziness since the late 1990s, but we were in the parking lot of the ballpark.
It’s also worth noting that the Nasdaq Composite is still only 15% off its highs.
But there is a lot of carnage within the index:
- Half of the index’s stocks are down 30% or more
- 40% of stocks are 40% or worse
- 35% of stocks are 50% or worse
- 28% of stocks are 60% or worse
That’s a small sample size, but here are some of the biggest brand names that are currently in the midst of a painful decline:
Facebook, Netflix, Shopify, PayPal, Zoom and Square have lost more than $1.1 trillion in market cap from their peak seen in 2021.
If you’re a holder of one of these stocks or another growth stock is getting slaughtered, your pain level obviously depends on when you bought them.
Many of these stocks still have great long-term returns, despite their recent declines.
But if you’ve been in the past few years you’ve definitely been feeling it.
I don’t know if the growth stock sell-off will continue. It may depend on the overall market and whether some of the big names like Apple, Google, Microsoft and Amazon join the party.1
If there’s another leg down for growth stocks that are crashing it’s important to remember that it can always go bad.
Remember that the price of a stock going from a loss of 60% to a loss of 75% is not down an additional 15%. This is a further loss of about 40%.
I’m not predicting it, but putting it out there because it’s always a possibility.
It is always difficult to predict what will happen to the stock market in the short term but the path of individual stocks is even more difficult.
I’m not smart enough to sort out winners and losers when we see reenactments like this.
The counter-argument to this argument is that the markets are moving faster than ever these days.
But it can take some time, even for the best-of-breed software companies, to see their stock prices revisit past highs.
Why are bubbles good for innovation?
1These stocks are down 8%, 10%, 12% and 14% respectively. So they are in an improvement, but not an accident like other development names.