Share prices of some of the world’s largest tech companies have jumped since the beginning of the year, spurred by the start of the so-called “futures” rally.
The rise is part of a broad increase in the share price of technology companies in the past few months.
Tech companies are using technology to become more valuable in the future.
But the share prices of the technology companies themselves are not reflecting that increase.
Recode’s Mike Allen and Evan McMillian take a closer look.
Read moreRead moreThe value of tech stocks are a lot higher than what the tech companies themselves earn, Allen and McMillian report in a research note released Monday.
Tech stocks’ share prices are higher than the companies’ earnings because the value of the tech businesses is rising faster than the earnings.
Tech investors, who have been driving up share prices, now have a strong incentive to drive down earnings in hopes of gaining a larger share of the future value of a company.
Tech stocks also earn a lot more money than the tech company that is doing the same work as the tech firm.
The companies pay the same people and companies for the same tasks, so the value is the same.
If the value has risen a lot faster, the companies should have a higher return on their investments.
The tech companies’ stock prices also are higher because of higher growth prospects for the technology sector, Allen writes.
But if the value had risen a bit slower, the technology stocks would not have gotten as much value out of their investments as they did.
Tech firms are being valued by investors at higher rates of return because the companies are worth more.
The faster the companies rise in value, the faster the returns are going to go up.
Read the full report here.
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