As I watch Amazon, Apple, Microsoft and Google continue to rip higher week after week, I am reminded of a quote from Scott McNeely, CEO of Sun Microsystems back during the dot com mania of the late 1990’s. Sun Micro was one of the tech darlings back then and eventually reached a peak valuation of 10 times revenues, an incredible multiple, even for a high margin tech software company. A couple of years after the tech bust, McNeely made the following comment:
Sun Micro rallied from approximately $5 in 1997 to $64 in 2000, a thirteen fold increase, before falling all the way back to $5 again a couple of years later.
Amazon, by comparison is a low margin online retailer. AMZN had revenues of $178 billion in 2017 so not trading at the same lofty multiple of revenues as Sun Micro. The same cannot be said for its share price performance however. AMZN has rallied from $100 in 2010 to over $2,000 in 2018, a twenty-fold increase. What could possibly go wrong?
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