When assessing the consensus on stocks, two viewpoints emerge. Some argue a bubble is forming, while others believe we’re already in one but note that bubbles can last a long time before they burst. The dominant view is that we’re at the start of a multi-year bull run.
Dan Ives, a tech analyst at Wedbush, describes this as a “1995 Moment,” citing a transformational tech spending surge reminiscent of the early Internet era. Tom Lee, founder of Fundstrat, believes the S&P 500 could triple in the next six years.
Believing a significant market peak is on the horizon, we decided to revisit the 1990s to make sure we’re not missing anything. The last thing we want is to turn bearish if substantial gains are still ahead.
Let’s start on April 4, 1994, the day Netscape was incorporated. Kleiner Perkins bought a 15 percent stake, valuing the company at $18 million. Netscape had minimal revenue, no profits, and a growing team. According to Alex Slusky, then a partner at New Enterprise Associates, this was the defining moment for that era in Silicon Valley. No one had ever seen a deal like it.
The world’s biggest tech companies suddenly realized they’d been outpaced. Bill Gates sent a memo to his team, declaring the internet the biggest threat to Microsoft’s dominance in the computer industry. Oracle, Sun Microsystems, and even Time Warner quickly shifted their focus.
At the time, everyone was fixated on creating a telecomputer, an integrated TV. But suddenly, it became clear that the next big thing wasn’t the television—it was the personal computer connected to the internet.
Six months after founding Netscape, fifty-year-old Jim Clark, a high school dropout from Texas, was eager to take the company public. Marc Andreessen, his co-founder, and just twenty-three at the time, recalled, “Jim was pushing for us to go public way before anyone else.”
There was a reason for this urgency—Clark had seen a boat named Juliet and wanted one like it, only bigger. To afford it, he needed more money. Netscape’s public offering in August 1995 marked the beginning of the dotcom bubble.
On its first trading day, Netscape’s share price soared from $12 to $48. Three months later, it reached $140, making it one of the most successful IPOs in history.
Michael Lewis captured the spirit of the era in his 1999 book, The New New Thing.
There was only one explanation: the market now saw the future through Clark’s eyes. “People started drinking my Kool-Aid,” said Clark. “Netscape obviously didn’t create the internet. But if Netscape had not forced the issue on the internet, it would have just burbled in the background. It would have remained this counterintuitive kind of thing. The criticism of it was that it was anarchy. What the IPO did was give anarchy credibility.”
Netscape’s success created a precedent. No longer did you need to show profits; you needed to show rapid growth. Having a past actually counted against a company, for a past was a record and a record was a sign of a company’s limitations. Never mind that you weren’t actually making money—there’d be time for that later, assuming someone eventually figured out how to make money from the internet. For the moment you needed to plow all of your revenues back into growth. You had to show that you were the company not of the present but of the future. The most appealing companies became those in a state of pure possibility.
The speed with which Clark had made himself and a lot of other engineers rich created new forces of greed and fear in Silicon Valley. Microsoft was twelve years old before people started talking about Microsoft millionaires; Netscape was one and a half. Up until then the typical engineer’s decision about where to work turned on old-fashioned considerations, like salary and benefits and the inherent technical interest of the work. Suddenly, all of these were overshadowed by stock options.
Kleiner Perkins’ John Doerr cleared $500 million or so in eighteen months, or thirty times his original investment, and become the most talked-about venture capitalist on Sand Hill Road. The other venture capitalists were forced to concede the point: the new, higher price for concepts, and the people who dreamed them up, was obviously worth paying.
In November 1995, Softbank’s Masayoshi Son broke into Silicon Valley’s clubby venture capital scene with a $2 million investment in Yahoo!. Just a few months later, in March 1996, Masa made a bold new offer: $105 million for a 33 percent stake.
Jerry Yang, who had co-founded Yahoo! with David Filo only a year earlier, was flattered but felt they didn’t need $100 million. Masa responded, “Jerry, everyone needs $100 million.”
At the time, Yahoo! had just 15 employees, net sales of about $1.6 million, and a net loss of $1 million. “Most of us thought he was crazy,” Yang recalled. “Putting $100 million into a startup in March 1996 was very aggressive, but I don’t think it was luck. Masa looks ahead in 15-to-20-year chunks.”
A month later, Goldman Sachs took Yahoo! public. The stock
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