Even now, after a 34% plunge in the Nasdaq 100 Index that’s wiped $6.7 trillion off the benchmark’s value from its peak a year ago, investors are worried about missing out on the next big rally in technology stocks.
(Bloomberg) — Even now, after a 34% plunge in the Nasdaq 100 Index that’s wiped $6.7 trillion off the benchmark’s value from its peak a year ago, investors are worried about missing out on the next big rally in technology stocks.
The remarkable optimism of everyone from growth-fund managers to Wall Street analysts and mom and pop traders has held up through raging inflation, Federal Reserve interest rate increases, disappointing earnings and a slowing economy. The Nasdaq 100 fell 3.4% Wednesday after the central bank’s latest move.
Investors don’t deny the headwinds, but with the November Fed meeting and third-quarter earnings now in the rear-view mirror, there’s optimism that the biggest shoes have dropped, leaving valuations at more attractive levels.
“We’re comfortable looking through the current headwinds and volatility, and we’re comfortable with our conclusion that these are very strong businesses that are going through a bit of a reset in expectations,” said Eric Schoenstein, chief investment officer at Jensen Investment Management, which counts Apple Inc., Microsoft Corp., and Alphabet Inc. among its top holdings. “Arguably, it has gotten a bit overdone,” he said of the selloff.
The Nasdaq 100 closed at a record high almost a year ago, Nov. 19, 2021. Many of its biggest companies have fallen even more than the benchmark since then, and the losses are mounting. Amazon.com Inc. fell Wednesday for a sixth straight session, ending at its lowest since March 2020, while Microsoft and Google parent Alphabet closed at their lowest since January 2021. Meta Platforms Inc. ended at its lowest since 2015.
Big tech remains broadly liked. Of Wall Street’s four largest companies — Apple, Microsoft, Alphabet and Amazon — the percentage of analysts with buy ratings ranges from a low of 75% at Apple to about 95% for Amazon.
And far from being deterred by recent weakness, retail investors have stepped up their purchases, according to Vanda Research.
“The selloff in mega caps was seen as a buy-the-dip opportunity rather than a capitulation moment,” wrote Vanda senior vice president Marco Iachini, who speculated the buying was a function of both earnings and FOMO — a fear of missing out.
This year’s drop has the Nasdaq 100 trading at about 19 times forward earnings, a discount to its 10-year average. And bulls point out that revenue growth at tech companies is expected to outpace that of the overall S&P 500 in both 2023 and 2024. Earnings are also expected to grow faster than the benchmark in 2024.
“We’re hopeful that the latest outlooks we got from companies reflect that the worst is behind us, from the perspective of downward estimate revisions,” said Chris Shipley, chief investment strategist for North America at Northern Trust Asset Management. “Hopefully they’ve cleared the decks for the near- to intermediate-term. That should help stocks start to form a bottom.”
He conceded that “fundamentals are likely to be sluggish for a while,” but that some big tech companies “clearly have attractive long-term prospects.”
Still, last week’s results pointed to further pressure on earnings. Tech companies in the S&P 500 now are expected to report earnings growth of 1.4% in 2023, down from the 10.5% pace expected in late June, according to data compiled by Bloomberg Intelligence. For the overall index, the consensus has dropped to 4.4% growth from 9.3% over the same period. Estimates for tech companies’ revenue growth has been halved since late June.
And optimism about the group among investors is hardly unanimous. Solita Marcelli, Americas chief investment officer at UBS Global Wealth Management, expects tech will see more pressure going forward.
“Investment in technology seems to be already slowing, and we think a deterioration in corporate profits and confidence will set up a more difficult 2023,” she wrote this week. While valuations already price in a reasonable downside scenario, “there is an exceptionally high level of uncertainty,” and this earnings season has featured “disappointments galore.”
Tech Chart of the Day
A dozen S&P 500 components have lost at least $100 billion in market value in the first 10 months of the year. The group is led by tech megacaps: Microsoft, Alphabet, Meta Platforms, Amazon and Apple have seen a combined market value of $4.7 trillion wiped out as of Oct. 31. The Windows software maker and General Electric Co. have each made the list three times.
Top Tech Stories
- Elon Musk plans to eliminate about 3,700 jobs at Twitter Inc., or half of the social media company’s workforce, in a bid to drive down costs following his $44 billion acquisition, according to people with knowledge of the matter.
- Qualcomm Inc., the biggest maker of smartphone processors, tumbled in late trading after giving a far weaker forecast than expected, punished by the economic slowdown and Covid-19 lockdowns in China.
- Qualcomm will continue to provide the modem chips for the “vast majority” of iPhones in 2023, a turnabout for a company that had expected to lose the business to Apple’s homegrown components.
- Media giant News Corp. has hired a new lobbyist to aid its ongoing fight against the country’s largest technology companies.
- For years, Facebook, Amazon, Apple, Netflix and Google—the revered FAANG companies—were great investments. But Meta Platforms Inc.’s meltdown shows how big tech’s invincible era is over.
- Venture capital investments in China are falling sharply this year, making it one of the worst-performing countries globally after the Communist Party’s crackdown and an overall decline in tech valuations.
- Lenovo Group Ltd.’s earnings climbed 6% after China’s top PC maker relied on cost reductions and new businesses to weather an unprecedented slump in global computing demand.
- Production at Foxconn’s iPhone factory in China’s Zhengzhou city is “basically normal,” an official from the Zhengzhou Airport Economy Zone, where the plant is located, said in a briefing. China on Wednesday locked down the world’s largest iPhone factory, declaring the zone off-limits to combat a local Covid-19 outbreak.
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- Facing flagging global demand for smartphones, Chinese producer Xiaomi Corp. has given a novel one-off redesign to its flagship smartphone to remind people it has a very powerful camera inside — by strapping a Leica lens to it.
–With assistance from Subrat Patnaik and Tom Contiliano.
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