Do you think a bubble is developing in tech valuations?

Ha, definitely. The bubble is going to burst soon, just like it did 12 years ago when Web 1.0 was all the rage and that bubble burst. What really irks me is that there are so many overvalued and unworkable companies with business models that can't sustain themselves for more than a year or two, yet the ridiculous evaluations keep on coming.

Groupon is estimated to be worth roughly 15 billion dollars, come on, that is just stupid. There is no way Groupon is worth that much, just one of the many overvalued companies that will find themselves right at the bottom when the bubble eventually bursts.

Yes.

Case in point: Facebook latest valuation was $50bn. Their 2010 revenue was reportedly $1.2-$2bn. Assuming a HUGE earning of $500M, their P/E would still be >100.

In comparison, the golden cow cash machine Google has a P/E of 23.5 (ttm).

In other words: Investors are betting Facebook is 4x the hit Google was.

It's a HUGE speculation.

Yes :)

Kidding aside - the answer is still yes. I think many of these evaluations are based on 'potential future income' but that potential is very overrated and evaluations are being based on the high end of the curve.

The over valuations may be biased towards the tech sector but they are not limited to that. Do a quick scan of NASDAQ or NYSE listed companies - compare their valuations (based on share price) to their known assets + 5 years (or even 10 years) worth of profit and consider how many come up short.

Remember that when you buy shares you are generally buying from another investor so no additional money goes to the company itself. As a company I would like to be over valuated when I wanted to release new shares (so that money comes to me) but under valuated if I want to buy them back (to minimise the level of control others have).

Share prices are simply a reflection of how the company is perceived - not what the company is actually worth.