Twenty-five years after the first dot-com bubble, where tech giants boasted sky-high valuations despite modest profits, today’s landscape presents a stark contrast, leaving many MarketScreener analysts and columnists bewildered weekly. A prime example of this trend is Snowflake, a company that had already raised eyebrows last year due to its exorbitant valuation and the market’s lofty expectations.

Unlike the tech behemoths of the dot-com era, which, despite their inflated valuations, were at least profitable, companies like Snowflake find themselves in a more precarious position. The anticipated slowdown in growth, which we previously speculated about, has not only materialized but has also intensified.

Compounding the issue is Snowflake’s ballooning operating loss, a scenario reminiscent of the situation at Affirm Holdings. This pattern of escalating losses alongside business expansion seems to be a recurring theme for Snowflake, with no foreseeable turning point.

A significant factor contributing to this predicament, common in the American tech sector, is the exorbitant stock option compensation, which amounted to over a billion dollars in the past year for Snowflake. This practice essentially sees Snowflake’s management teams absorbing all potential profits, leaving little room for profitability unless there is a drastic reduction in employee compensation.

The question arises: who, or what, will put an end to this unsustainable cycle?

Adding to the concerns is the departure of CEO Frank Slootman, who, in a span of three months, cashed in $250 million by selling shares acquired through stock options. This move, mirrored by Snowflake’s CFO and its early investors, who collectively sold off their shares while continuing to promise prospective buyers a bright future, raises serious questions about the company’s valuation and the broader implications for investors and the tech sector at large.

As Snowflake and similar tech companies navigate these turbulent waters, the broader tech sector faces a critical juncture, challenging the sustainability of current business models and compensation practices.

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