Tech Cycles and Hype

Technology moves in waves: a breakthrough, a rush of excitement, a painful shakeout and then real long-term winners. Here is how to recognize where a trend stands and how to avoid getting burned by the hype.

The hype pattern

New technologies tend to follow a familiar arc. Early excitement drives prices far ahead of actual profits. Reality disappoints, and many stocks crash, even if the technology itself keeps spreading. Later, the survivors grow into big, profitable businesses. The internet followed this path: the Nasdaq Composite fell about 78% from its March 2000 peak to its October 2002 low, yet the internet went on to reshape the economy.

Hype cycles track the emotional cycle of the market.

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