TECHNOLOGY Bloomberg Businessweek October 12, 202020
Supersonic
Flight’s
Comeback
THEBOTTOMLINE Theshifttoremoteworkingduringthe
pandemichasledtoa boomforcloudcomputingstocks,which
hasechoes,someobserverssay,ofthe1990sdot-comcraze.Intelligence. “The IPO market is booming for
companies exposed to secular trends such as
cloud and e-commerce.”
Still, for professionals who witnessed the
froth of the late 1990s firsthand, it’s hard to shake
the feeling that a bubble could be forming once
again. The S&P 500 software and services industry
group is sizzling hot, trading at 38 times reported
earnings—the same valuation as in late 1998, when
the dot-com bubble was starting to inflate. “All
they have to say is ‘We’re in the cloud, we’ve got
cloud solutions,’ and all of a sudden they get a
bazillion valuation on it,” says Paul Nolte, portfolio
manager at Kingsview Investment Management.
“Similar to ‘I’m on the internet, I have dot-com
after my name’ in ’99.”
The Global X Cloud Computing ETF is up 58%
this year and has almost doubled since its lows in
March, when the pandemic forced governments to
start locking down the economy. Of the 36 stocks
in the fund, only four have posted negative returns
in 2020. Five of the stocks have climbed 170% or
more. The bulls hold there’s a method to the mad-
ness. The world was already becoming more digi-
tized; the pandemic and stay-at-home economy it’s
created only accelerated that process. That’s ben-
efited the stocks of cloud computing companies,
as more people take up the technology in what
looks like a lasting shift toward remote working.
“They’re in a unique situation,” says JJ Kinahan,
chief market strategist at TD Ameritrade. “They
have not only added clients, but they’re going to
be able to add sticky clients.”
Take Zoom Video Communications Inc., whose
cloud-enabled video services have become the
go-to platform for many people working from
home. In the fiscal second quarter, Zoom saw rev-
enue more than quadruple from a year earlier, to
about $663 million. The company has suggested
in its forecasts that stellar growth will continue.
Its shares are up more than 600% this year. Or
consider Twilio Inc., whose shares have tripled
in 2020. Retailers have used the company’s tools
for curbside pickups, and health-care providers
have leaned on the platform for telehealth ser-
vices. While not profitable, Twilio reported sales
in the second quarter that were 46% above lev-
els a year ago.
To Erika Karp, founder and chief executive
officer of Cornerstone Capital Group, that’s the
key difference between the internet bubble and
today. Cloud companies are demonstrating real
growth, while the 1990s dot-com boom was based
on hopes for the future. “Back then we were mak-
ing up metrics for performance. We were makingstuffupthatwasnotreal,it wasnotfundamental,”
shesays.“NowI thinkwe’retalkingaboutactual
fundamentalgrowth,actualearningsgrowth.”
Ontopofeverythingelse,withbrokeragescut-
tingfeestozeroandmanypeoplestuckathomein
thelockdown,individualinvestorshavefloodedinto
themarket.Datashowthey’vebeenextremelyactive
inthemarketforoptions—financialinstrumentsthat
givea tradertheright,butnottheobligation,tobuy
orsella stockata specifiedpriceinthefuture.To
offsetthosebets,thefirmssellingtheoptionsbuy
theunderlyingstock,fuelingfurtherpricegains.
“There’sa bitofoverexuberance,”saysDonald
Selkin,atNewbridgeSecuritiesCorp.“Definitely,
itremindsmeof1999.”—SarahPonczek,with
ClaireBallentineandVildanaHajric Global X Cloud
ComputingETF
$25201510
10/4/19 10/6/20○ Almost 20 years
after the Concorde’s
retirement, Boom
Technology is
resurrecting
superfast air travelBlake Scholl just kept turning up. For months he
would rent a plane in Silicon Valley, fly himself to
California’s Mojave Air and Space Port, and get a
table at the Voyager restaurant, a well-known hang-
out for modern-day aviation mavens.
Scholl would sit for hours, listening to conver-
sations and introducing himself to pilots and engi-
neers from aeronautics pioneers such as Virgin
Galactic Holdings Inc. and Scaled Composites LLC.
Visit by visit, Scholl, an aerospace outsider, began
to figure out the kinds of people and skills needed
to bring a revolutionary new aircraft to life. “I’ve
not seen such a practical approach before or since,”
says Elliot Seguin, a test pilot who knows Scholl.
On Oct. 7 the results of Scholl’s scouting missions
and subsequent years of hard work were revealed
to the public. His startup, Boom Technology Inc.,
founded in 2014, unveiled the completed version
of its XB-1 supersonic jet. While only a demonstra-
tor prototype designed for a single rider—the test
pilot—the plane represents a milestone in the pur-
suit of superfast air travel.○ Scholl