Many highly respected market pundits are maintaining a bearish view on equity markets and expressing stern warnings on what they call the “technology bubble”. We have no view on interest rates and equity markets and technology as a group or sector. What we see is that most profitable technology stocks are either cheap or fairly valued. As often, the thesis of the expert is not a forecast but a description of a reality that happened last year. On the other hand, loss-making companies where traditional valuation is trickier, seem very bubbly and risky. We will quickly review how iconic companies such as Google, Adobe and Amazon have performed in the recent past and check their current valuation.

-         Google trades on a 18.0x ntm PER in line with the US market average. It has underperformed the SP500 in the past 12 months and performed in line with the market in the last three years and has been given little reward for almost doubling its ntm annual EBITDA to a respectable $117.7bn. Google trades on a 9.1x EV/EBITDA, down from its 2021 16.8x peak and close to a 10-year low. Not bubbly for a long-term highly profitable company with significant moats which is set to increasingly benefit from the cloud and AI.

-         Adobe is the leader in online content creation tools for creators and marketers with a very resilient high-margin subscription model. Its share has lost 31% of its value and underperformed the SP500 index by 23%. The three-year underperformance is 27%. Adobe is given little credit for both its 40% EBITDA margin and its 15% average growth rate in the past 10 years. On valuation, Adobe trades at a demanding 20X EV/EBITDA. Historically, it is a 10-year low, more than half the peak level reached in 2021 and much lower than comparable SaaS companies like Intuit or ServiceNow.

From a long-term perspective, Adobe and Google are well managed, highly profitable companies that trade at fair to attractive valuations. As often, the thesis of the expert is not a forecast but a description of the recent past. There was a bubble in technology in 2020-2021. This bubble burst in 2022.