With LinkedIn (LNKD, news) valued at nearly $10 billion and Facebook said to be worth more than entertainment and media conglomerate Walt Disney (DIS, news), it's no wonder some market watchers see a second dot-com bubble developing.
But that hasn't stopped fund managers from joining in the buying frenzy for the new tech darlings.
Quick price pops for newly public companies -- and heightened demand for a piece of hot companies that have remained private -- have made many Internet stocks overvalued by most traditional measures, say analysts.
Many are even more expensive than old-school tech titans like Google (GOOG, news) and Apple (AAPL, news). "These companies, in almost every dimension you can imagine, seem pretty pricey compared to other Internet and technology companies," says Scott Kessler, the head of technology-sector equity research for Standard & Poor's. "That doesn't mean they're not good companies. But the valuations are much higher."
And yet managers from Fidelity, JPMorgan Chase (JPM, news), Morgan Stanley (MS, news) and other fund shops have taken positions in these pricey, newly public Internet companies.
According to data provided by fund tracker Morningstar, 42 mutual funds now own shares of social-networking site LinkedIn, which is selling for more than double its May IPO price of $45. Other funds have added positions in Internet radio service Pandora Media (P, news) and HomeAway (AWAY, news), an online market for vacation rentals.
It's not just newly public companies that are garnering the managers' attention. Several fund companies are also buying shares of still-private social media companies on the secondary markets. For example, more than 30 Fidelity mutual funds own shares of Facebook, according to a Fidelity spokeswoman. Several T. Rowe Price Group (TROW, news) mutual funds have stakes in social-media companies such as Zynga, Twitter, Groupon, Angie's List and Facebook.
A T. Rowe Price spokeswoman declined to comment on specific positions but pointed out that the company has said that while some of these companies may look overvalued, they're also more established and stable than companies from the late-1990s dot-com boom.
Meanwhile, funds affiliated with Morgan Stanley Investment Management, including the $422 million Morgan Stanley Mid Cap Growth Fund (DGRAX, news), hold a total of 5 million shares of preferred stock in Zynga, which will convert to common stock when the company goes public, according to the social-gaming company's most recent filing with the Securities and Exchange Commission. Morgan Stanley declined to comment.
Individual investors can't buy shares of private companies on their own unless they're "accredited," meaning they have a net worth of at least $1 million or an annual income of at least $200,000.
