Sky-High Software Stocks Are Beginning to Look Like They’re Forming a Bubble
Summary
What is attractive instead is the sector’s high revenue growth and large market opportunity, as corporations and smaller businesses increasingly move toward cloud-based subscription software for many uses like human resources. And the iShares ETF understates the performance of the sector’s high fliers because it’s dominated by larger, more mature companies, such as Adobe (ADBE), Oracle (ORCL), and Microsoft (MSFT). Leading technology companies, including Apple (AAPL), Alphabet (GOOGL), Facebook (FB), Microsoft, and Amazon.com (AMZN) are valued at four to eight times sales. If investors begin to focus on earnings based on Generally Accepted Accounting Principles, which properly reflect stock compensation as an expense, valuations could fall. Cloud industry leader Salesforce.com (CRM) trades around $159, or 200 times its projected GAAP profits of 79 cents a share in its current fiscal year, ending in January 2020.