In retrospect, those tech stocks were clearly overvalued in early 2000. Of course, many investors threw caution to the wind, and paid dearly for doing so. Traditional valuation techniques that relied on projected earnings and cash flows were often nowhere to be seen. Based on the Perkins valuation method, let's assume investors were pricing in a hyper-growth in Nortel's revenue for the next five years. That revenue figure is similar to Nortel's revenues last year, so the company could meet investor expectations even if annual revenue growth was zero.
Markets have a tendency to overreact on the upside and the downside.
While we may not have hit the bottom of the tech market, current prices reflect a more reasonable outlook than the frenzied expectations of last year.