Everything you need to know about the tech IPO boom — in 4 paragraphs

Is this an about-to-burst bubble?

Candy Crush
(Image credit: (AP Photo/Richard Drew))

"Warning flags are starting to go up on Wall Street," says Adam Shell at USA Today. After wrapping up one of its best years in recent history, the "froth is being rubbed out" of the stock market. Many "hot momentum stocks" — including investor favorites like Facebook and Tesla — "are getting slammed." Even mutual fund investors are nervous, having taken $4 billion out of U.S. stock funds last week alone. It's not clear yet whether the selling will get worse, and investors may be preparing to "buy the dip." But for now, it's clear that "skittishness is making a comeback."

"It sure looks like a bubble" says Jeff Sommer at The New York Times. These days, it seems like every hot startup IPO is "commanding prices that some strategists say will turn out to be unsupportable." Take, for example, King Digital Entertainment's recent IPO, in which the Candy Crush Saga developer's share price fell 16 percent in its first day of trading. On the plus side, large indexes like the Standard & Poor's 500 still seem "tethered to reality, at least compared with the stratospheric prices that investors routinely paid in the market bubble that burst in 2000." But didn't we learn our lesson? "The internet and biotech groups were the beating heart of irrational exuberance" then, and now "they are setting off alarms again." Fortunately, most of the high prices in the overall market "are being backed up by earnings to a much larger extent than in 2000." So even if today's tech bubble bursts, it might not take the rest of the market down with it.

Still, this is clearly an "important juncture in the IPO market," says Bob Pisani at CNBC. At first glance, "the IPO business is terrific." In 2014, there have been 53 IPOs that have raised $8.5 billion, with dozens more firms preparing to go public in the coming months. But if you want to know if we're headed for an IPO downturn, look for the signs. "First, IPOs getting pulled." Next, "watch for re-pricings." And finally, "pay particular attention to the economy." Harsh winter weather may have put a dent in the recovery, but that excuse will only go so far. And "if the economy does not grow as fast as anticipated, growth companies will see a pullback in their IPOs."

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But even if we are staring at a tech bubble about to pop, there's at least one "silver lining," says Farhad Manjoo at The New York Times. For most startups today, it's growth — not profit — that matters. And as long as investors "keep throwing money into tech," the rest of us will "get more great products at low prices, even if it imperils the companies offering them." That includes everything from cheap cloud file storage to free text messaging to Amazon's dreams of drone deliveries. Who knows what will actually pan out for these companies in the long run, but "so long as you don't make the mistake of investing in dubious tech dreams, you may be able to ride out the bubble to some pretty great swag."

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Sergio Hernandez is business editor of The Week's print edition. He has previously worked for The DailyProPublica, the Village Voice, and Gawker.