Where risk lurks in 2011

After all, let’s look back quickly on several of the popular picks for bubble status at the end of 2009: Apple Inc. shares; U.S. Treasuries; gold.

Investors are trying to get in early on the dominant companies of the emerging "cloud computing" era, where installed software is passé and applications get accessed via the Internet and are stored on somebody else’s servers. As a result, the stocks of the major players have been driven … wait for it … sky high.

Does that make them cheap? Sample some of these metrics: Salesforce.com trades at about 250 times trailing revenues, 100 times forward revenues, and more than 11 times trailing revenue, according to Standard & Poor’s Capital IQ. By comparison, Netflix looks like a bargain at 68 times trailing revenues and 50 times forward earnings.

Other high fliers in the sector: F5 Networks Inc. FFIV-Q trades at more than 70 times trailing revenues and 40 times forward revenues. VMware Inc. VMW-N is priced at 125 trailing revenues and 52 times forward earnings.

Let’s be fair for a moment. If these businesses are to all intents and purposes the Chinese counterparts to some of the most successful U.S. Internet sites – then, extrapolate YouTube and Amazon.com’s U.S. audience and market penetration to the billion-plus Chinese consumers, and there’s an awesome investing possibility.

But as Herb Greenberg , a commentator at U.S. business cable channel CNBC says, "I think I figured it out with these Chinese IPOs … we need to be asking: ‘How’s biz?’ and at Youku … it ain’t so hot." The actual numbers for Youku, Mr. Greenberg notes, include just $35-million in revenue for the first nine months of 2010, a growing net loss to $24.9-million in the same period, and a negative gross margin for all of 2009.