As investors, we tend to focus myopically on numbers, but you can learn an awful lot about the direction of the markets from the simplest casual conversations… like the one I had with a friend who just recently got back from Silicon Valley. Skyping me from the airplane WiFi, he wrote: “The Valley is soooo drunk right now, it’s insane… the bubble is tangible.” It’s not the first or last time I’ve heard that sentiment in the last few months. It’s what sent me down the path of writing a series on the technology bubble.

Just how drunk is the Valley right now? VC investment for 2014 is up 52% over last year thus far—a multibillion-dollar jump. I dig into the numbers below to see just how bad it might be and whether investors need to brace for a blowback.

Another such conversation was with my father about the Apple Watch. While he was out on the town in the days after the announcement, numerous people commented to him that Apple had “done it again” and that its stock was “sure to double” as it’s “way cheaper than a few years ago.” The collection of retired boilermakers, dirt salesmen (not a disparaging remark—one guy really sells specialty dirt to golf courses), funeral home and cemetery owners, and similar nonfinancial professionals he keeps as company is telling. Ultimately, they have more power to drive the market than anyone else.

I argued valuation with him for a while, but it doesn’t really matter much in the short run. If enough people share a sentiment, right or wrong, the market will follow. However, eventually reality catches up with exuberance. When it does, will the Apple Watch be enough to keep Apple’s stock aloft? BIG TECH’s lead analyst Adam Crawford explores that below.

Regards,


Alex Daley
Chief Technology Investment Strategist
Casey Research