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The Tech Bubble Debate, Explained

Has the value of technology startups grown out of proportion to their future earnings potential?

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Silicon Valley is booming. Investors are pouring billions of dollars into hot technology startups. Improbably young technologists are becoming stupendously wealthy, and some are throwing lavish, over-the-top parties. And to many people, it all seems eerily like the last days of the 1990s technology bubble.

But while there are some superficial similarities between today’s technology boom and the bubble of the late 1990s, there’s also a huge difference. The internet not only has 10 times as many users as it had 16 years ago, it’s also much more central to users’ lives and — therefore — the economy.

So to figure out whether there’s a bubble, you shouldn’t look at whether Silicon Valley parties have gotten more extravagant. Instead, you want to do some basic math: Has the value of technology startups grown out of proportion to their future earnings potential?

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This article originally appeared on Recode.net.