Technology valuations across the board have, largely, hit obscene levels. Personally, I haven’t seen anything like this in my lifetime, since the dot-com bubble two decades ago.
While valuations have largely been pushed up due to central bank stimulus, valuations in the technology sector specifically have been driven by optimistic sentiment that various technologies will become ever-more important in the years to come as the economy recovers from the pandemic.
Similarly, green technologies like hydrogen have driven stocks such as Canadian hydrogen-powered vehicle maker Ballard Power Systems Inc. (TSX:BLDP) to absolutely incredible levels relative to their income and earnings potential. The green investing revolution, spurred by ESG (Environmental, Social, and Governance) mandates at various institutional firms (as well as for various retail investors) has resulted in significant capital inflows into such investments in recent years. While many expect these flows to continue for some time, at some point even the best companies become overvalued, and entire sectors can see too much capital all at once.
I’d encourage investors to broadly remain cautious at this time, given the valuations we’re seeing today for companies like Ballard. Green technology is great, but any technology becomes overly expensive at some level, so ensuring one is getting good value for one’s investment dollar is as important as ever. As famous investor Warren Buffett often says, "be greedy when others are fearful and fearful when others are greedy."
Invest wisely, my friends.
