It must arise. The word “descend” is an affront to Newton’s third law. It’s also a good reminder that when the business market seems to have fundamentally changed, we’re often seeing a temporary downturn.
This idiom rings true when we look at the cycles of technology speculation (up and then down), venture capital (up and then down) and the rate at which new unicorns hatch (up and then down). These three trends are obviously linked, but what gave us pause recently was the realization that we haven’t just seen a slowdown in recent quarters: instead, it’s been a full-dress return to pre-Covid norms.
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Take tech valuations, for example: As we round up the weekly equity roundup this morning, the price of tech stocks—as measured by our favorite software-company tracking index—is trading at early 2020 levels today. Before and after the massive covid-induced selloff hit US stocks:
Clearly, the 2020-2021 growth in software valuations was more unusual than the new-normal. Additionally, the fact that companies in the index have grown over the past few years but are undervalued today suggests they may have been overvalued even pre-Covid. If today’s prices continue, they will not only claim the recent profits, but also the inflated prices of the 2010s.