Are ASX tech shares like Afterpay (ASX:APT) in a bubble?

Are ASX tech shares like Afterpya Ltd (ASX: APT) in a 'crazy' bubble right now? One ASX fund manager thinks so, and here's why.

| More on:
A hand holding a pin about to burst a balloon, indicating a crash or drop in asx shares

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX tech shares have been some of the brightest stars in ASX investors eyes in 2020. The S&P/ASX All Technology Index (ASX: XTX) is up more than 32% year to date (at the time of writing). That includes the impact of the share market crash/bear market we saw back in March. If you take the index' returns since 23 March, the returns are even more staggering – more than 127% at the time of writing.

But with companies in this index such as Afterpay Ltd (ASX: APT) rising more than 200% since the start of the year, many investors in the tech space might find themselves getting nervous with money still on the table.

That's a view that is justified, if reporting from the Australian Financial Review (ASFR) this week is to be believed. The AFR reports that Andrew Brown, fund manager at hedge fund East 72, is reminded of the 'dot.com bubble' when looking at the current state of the ASX tech sector. Calling tech valuations "still crazy", Mr Brown colourfully commented, "at one stage last week, Afterpay was worth more than Coles. I don't care where you come from, that's plain stupid."

Are ASX tech shares 'stupidly' overvalued?

According to the AFR, the fundie sees tech valuations as remaining dangerously high, as a cause of ultra-low interest rates and stimulus resulting in "zero-cost money". He stated the following on this matter:

What it does is take away from people's valuations disciplines. If you do a discounted cashflow using low-cost money it's going to come out whatever you want. So people just put a finger in the air and judge the business model. That's what's gone on in buy now, pay later."

Mr Brown foresees 2021 as being a difficult year for the 'hero companies' of 2020:

Things started to really pick up for the online retailers around this time last year, with the Black Fridays and coronavirus. So it's going to get really tough for them as we get into the first and second quarters [of 2021] as they're cycling off COVID.

Mr Brown is instead looking to what investors might describe as 'traditional' value shares. He notes the effects of the Pfizer coronavirus vaccine news, as well as the "steepening in the US yield curve" in the bond markets, that give the opportunity to "buy a dollar for 70 cents".

He names Seven West Media Ltd (ASX: SWM) as one such share, telling the AFR that it's "one of those sum of the parts type things you have to do a bit of homework on". Mr Brown likes Seven because "they have a lot of assets on the balance sheet that might be sold". If Mr Brown is to be believed, sometimes it's the simple things that are most worthy of attention.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Sebastian Bowen owns shares of Pfizer. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A man slumps crankily over his morning coffee as it pours with rain outside.
Technology Shares

Why is the Block share price crashing 33%?

This payment giant's shares are being hammered today. But why?

Read more »

A young man pointing up looking amazed, indicating a surging share price movement for an ASX company
Technology Shares

These ASX 200 tech stocks could rise 20% to 35%

Goldman Sachs is tipping these shares to rise strongly from current levels.

Read more »

A corporate team or board stands together and looks out the window.
Technology Shares

WiseTech shares charge higher on $3.5b acquisition news

This tech stock is ending the week positively. But why?

Read more »

A man leans forward over his phone in his hands with a satisfied smirk on his face although he has just learned something pleasing or received some satisfying news.
Technology Shares

3 reasons to buy this $25 billion ASX 200 tech stock today

A top expert forecasts more outperformance from this fast-growing ASX 200 tech stock.

Read more »

Lines of codes and graphs in the background with woman looking at laptop trying to understand the data.
Technology Shares

Why is the Brainchip share price crashing 9% today?

The semiconductor company is being sold off on Tuesday. But why?

Read more »

A man with a wide, eager smile on his face holds up three fingers.
Technology Shares

3 reasons this sold-off ASX 200 share is primed for a big rebound

A leading expert believes this ASX 200 share is well placed to outperform.

Read more »

a man surrounded by huge piles of paper looks through a magnifying glass at his computer screen.
Technology Shares

I did some research on Siteminder — Here's what you should know

The big questions I'm monitoring for answers.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Technology Shares

Up 98% in a year, how this ASX All Ords stock is tapping into a $16 billion market

A leading expert forecasts more outsized returns for this surging ASX All Ords stock.

Read more »