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Does the Facebook deal signal a new tech bubble?

Does the Facebook deal signal a new tech bubble?

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Does the Facebook deal signal a new tech bubble?

Does the Facebook deal signal a new tech bubble?
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There are billions and there are ridiculous Facebook billions.

First it was Instagram. Then it was Yammer. Then Tumblr. Then Waze. And, just last week, Viber. These are all start-ups that received around $1 billion each over the past couple of years to be acquired.

Now Facebook's latest acquisition – WhatsApp – doesn't just surpass other acquisitions, it makes them look like they were purchased with change found in between Mark Zuckerberg's sofa cushions.

Facebook announced on Wednesday it was purchasing five year-old WhatsApp for a whopping $16 billion. Were it a publicly-traded company, WhatsApp would fall at roughly number 265 on the S&P 500 list. It was purchased for more money than the value of Humana, Marriott International, or Southwest Airlines.

According to CNBC contributor Gina Sanchez, founder of Chantico Global, this may be sign of a tech bubble but one that may not come crashing down. Well, at least not yet.

"A lot of people have been talking about a tech bubble," says Sanchez. "I do think that this [the WhatsApp acquisition] is yet another data point that tells us that this is a bubble. But, that doesn't mean that the bubble is going to burst immediately."

Instead, Sanchez sees investors jumping into tech names hoping to hitch their portfolio to a rising star. That could actually inflate any possible bubble, believes Sanchez. 

"I think the fuel behind that is going to be fear," says Sanchez. "Fear of investors missing out and then fear of investors wanting to hold on to what they've got. I think that's going to cause the market to be quite volatile."
However, Steven Pytlar, Chief Equity Strategist at Prime Executions, believes it's not the entire tech sector that may be in a bubble but just one segment in particular, social media. Pytlar notes the divergence between the Global X Social Media Index ETF (the SOCL) and the NASDAQ-100 index over the past year.

"Since May," says Pytalr, "the social media ETF has really outperformed the top 100 names in the NASDAQ quite significantly. How we interpret that is that really it's not a tech-wide phenomenon, although tech right now is very strong on the charts. It's really social media running away as new money comes into it."

Pytlar believes headlines about large acquisitions are driving people to invest in the social media space though relatively new stocks such as Facebook, Twitter, LinkedIn, and the like.

"That can create a bubble," says Pytlar, "but I don't think – and the charts don't tell us – that's really seeping into the broader tech space, into the more traditional semiconductor and maybe older technology companies yet."

To see the rest of the discussion on the NASDAQ with Sanchez on the fundamentals and Pytlar on the technicals, watch the video above.

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