During our conversation, I asked Druckenmiller what parallels he saw between pandemic-fueled tech stocks and the dot-com bubble. He was no stranger to the internet bust, famously buying $6 billion of tech stocks near the top of that market before they lost half their value in a matter of weeks.

The main similarity he noted is that tech stocks reached “speculative levels” in both periods, driven by exuberance and easy money. Fed policy was much looser in the latter period, however, with quantitative easing (QE) and rates near 0% versus the late 1990s, with no QE and rates in the 4-5% range.

A key difference noted by Druckenmiller is the type of companies that were affected:
The internet was just sort of being built and the big winners in 1999 were companies like Sun Microsystem and Cisco, that were building the guts of the internet. Think of the internet infrastructure like the railroads 150 years ago. Think of the tech stocks like a company selling railway ties and building the guts of the internet.

When you’re building the railroad, your sales are going up +50, +60 or +70% a year. But once the railroad is built [you don’t need the railway ties anymore]. Your growth not only doesn’t go up 70%, it goes down because on a rate of change basis, you don’t need any more railroad ties.

Cisco Systems Inc.—the networking giant—is a particularly apt example.

“People forget, but Cisco was once the world’s most valuable firm,” says R.J. Assaly at Toggle AI, an analytics firm that Druckenmiller counts among his investments. “In March 2000, it crossed a market cap of $500 billion and dethroned Microsoft.” Assaly notes that Cisco never sniffed those highs again; its stock price recently hit a 52-week low, and its market capitalization is now about $205 billion.

Back in May 2021, Druckenmiller told me that high-flying “software-as-a-service” (SaaS) and cloud stocks may not suffer the same long-term decline in the case of a market correction:
“What you have now is this incredible wave of digital transformation, particularly moving onto the cloud. I used to say 2-3 years ago in some interviews that we’re in the bottom of the first or second inning in terms of digital transformation. And this is a 10-year runway. Well, Covid sort of jumped you from the bottom half of the first inning to the sixth inning.

So, now full disclosure, I didn’t see what was coming in 2000. But I [have a difficult time coming up] with a scenario that this digital transformation thing is going to collapse and these SaaS companies are going to go away.”

At the time, Druckenmiller said that “price”—not the underlying fundamentals—was the main concern with popular cloud and SAAS names. Valuations in this segment of the tech sector have indeed reset: The median forward revenue multiple for the Bessemer Venture Partners Cloud index has contracted from ~15x to ~7x in the past year.

I don’t know what Druckenmiller thinks now, but his May 2021 argument remains relevant.