World-renown information technology pundit Dr James Martin says overvalued dot-com stocks will cause a "spectacular crash" due to the inevitability of a market correction.
"Many of the Internet stocks are ridiculously priced, and there's got to be a crash coming - a spectacular crash," said Martin, founder and chairman of James Martin & Co, in an interview with Computerworld Hong Kong.
Asked if he was being facetious, Martin stood by his assessment.
"No, it's not a facetious comment," he said. "I think there are quite unsustainable ratios [between market capitalisation and revenue]. And if you look at the history of the markets, when something has gotten completely out of line, then there's a correction which comes. So there's certainly going to be a correction."
At the same time, Martin made it clear that he is not predicting an across-the-board stock market crash.
"I wouldn't say the whole of Nasdaq is going to go down; it's the stocks where the price is too high compared with the value" that will dive, he said.
"There are lots of high-tech stocks which are very valuable stocks which will do very well," Martin said. "I think it would apply to some of the technology stocks and not others. There are lots of underpriced technology stocks." Investing for value ultimately pays off, he said, "and there are lots of value investments which are low-priced today. Partly they're low-priced because people are looking for the flashy dot-com companies."
According to Martin, "anything's that's dot-com, which is a fair number, is very overpriced." He maintains that there are many stocks which have never made a profit and will never come close to making a profit.
"But the analysts today don't think of looking at profits - they just think of multiples of revenue," he said. "You've got some stocks where the market cap is 20 times revenue, and that really is crazy."
Noting that "it's very difficult to predict when the correction will come," Martin stressed that it's inevitable. "I don't think the market for the long term - for the next 10 years, say - can sustain market caps which are 20 times revenue," he said.
Martin does see a silver lining in dot-com mania, however - a more equitable distribution of Internet wealth worldwide.
"I think it's probably good. It means the internet is a huge social force," Martin said. "In the beginning the internet was mainly the United States; in fact, the successful dot-com companies still today are mainly the United States. But now the whole of the rest of the world is taking it seriously. So there's going to be a lot of development of internet-related business and facilities everywhere."
"It's a very fundamental change in society and industry in general. It's amazing how the conversation is the same all over the world," he said. Noting that he was on his way to Australia to speak to university students, Martin said he knew what the students would want to talk about: "'How do we IPO?' 'How do we make money?' 'What dot-com stock should we buy?' 'If we IPO is it going to be on Wall Street or could it be on the Sydney Exchange?' That's the conversation everywhere," Martin said.