Budrigantrade-com-collapse of shares of high-tech companies
Budrigantrade-com-collapse of shares of high-tech companies
2022.12.11 08:17
Budrigantrade-com-collapse of shares of high-tech companies
Budrigantrade.com – The fall in high-priced technology stocks this year is seen by some investors as more than just a bear market: Meta Platforms Inc., the parent company of Facebook, and Amazon.com Inc., the FAANGs (Facebook, Amazon.com, Netflix, and Alphabet Inc.), led the transition to a digital world and fueled a 13-year bull run. This is the end of an era for them.
However, history demonstrates that market leaders of one era almost never prevail in subsequent eras. There are early indications that a shift is taking place: Netflix and Meta’s growth has slowed or stopped altogether, and the sheer size of Amazon, Apple, and Alphabet makes it unlikely that they will provide the same significant returns in the future as they did in the past.
Richard Clode, a portfolio manager at Janus Henderson Investors, said by phone, “We think it is unlikely the FAANG will lead the next tech bull cycle.” He added that he has reduced his holdings of those stocks “very materially.” Since the acronym was created, we have been exposed to FAANG at its lowest level.
What a conclusion, if this is indeed the cycle’s end for these businesses.
The entire stock market was rocked by the coronavirus pandemic that broke out at the beginning of 2020. However, indexes rebounded strongly after a blink-and-you-miss-it plunge. As locked-down consumers ordered goods from Amazon, subscribed to Netflix to watch “Tiger King,” and spent hours scrolling through Facebook and searching on Google using iPhones, large-capitalization technology stocks like the FAANGs led the way.
Yet, financial backers are reevaluating their more extended term potential since social orders have resumed and higher loan costs all over the planet have damped risk cravings.
The accelerated growth rates offered by technology companies have been a major draw for investors. The growth now appears to be less rapid.
Goldman Sachs strategists wrote in November that “superior” sales growth, the characteristic most associated with large-cap tech stocks, has disappeared, at least for this year. Megacap tech stocks’ sales growth of 8% in 2022 is lower than the 13% growth anticipated for the S&P 500 Index as a whole, according to the bank’s strategists.
According to Goldman Sachs, the gap between tech companies’ sales growth and the benchmark next year and in 2024 is much smaller than the average over the past decade.
Michael Nell, senior investment analyst and portfolio manager at UBS Asset Management, stated, “It’s very difficult to grow those mega-revenues at very, very high growth rates the way that they did historically.” Although megacap stocks have performed admirably, it is difficult to see how they will necessarily drive future performance.
After the Facebook owner’s sales forecast for the fourth quarter came in below analysts’ expectations amid a slowdown in the advertising market, Meta shares lost a quarter of their value in one day in October. After predicting the slowest holiday-quarter growth in the company’s history, Amazon.com’s shares fell 7% the following day.
It is humbling to look at the stock market luminaries of the past. Leaders in the late 1990s dot-com boom Cisco Systems Inc. and Intel Corp. have never returned to their 2000 highs, whereas the Nasdaq 100 Index took 15 years to surpass its 2000 peak.
With a market value of $2.3 trillion, Apple, the largest company in the world, has fared the best in this year’s bear market, falling 20%. The demand for the most recent iPhones, the company’s approximately $170 billion cash pile, and marketable securities have all contributed to the stock’s rise.
The other stocks in the FAANG group have lost more, from Alphabet, which fell 36%, to Meta, which fell 66%. Subpar performance in the years to come will be a significant drag on the market, as the group still accounts for more than 10% of the S&P 500 weighting despite the declines.
Additionally, it appears that the decline in technology stocks will continue into the following year. According to data compiled by Budrigantrade Intelligence, analysts anticipate that profits for the sector will decrease by 1.8 percent next year, in contrast to the expected growth of 2.7 percent for the entire US market.
Investors are becoming more picky about which businesses they are willing to back in light of rising inflation and higher borrowing costs. Meta’s bet on the metaverse, for example, is one of the large capital projects on unproven technologies that has not fared well. This year, a Goldman Sachs portfolio of losing tech stocks has dropped nearly 60%.
“The market is telling them that we want some near-term profitability and can’t afford to fund all of your negative free cash flow,” the company’s spokesperson continued. Make things a little more real: Columbia Threadneedle Investments’ head of global equities, Neil Robson, advised investors to “grow a little bit slower, but do it profitably.”
In his portfolios, Robson still favors technology, albeit to a lesser extent than in the past. He still owns Alphabet and Amazon, but he also invests in energy-efficient businesses. Nell of UBS Asset Management is looking for opportunities in semiconductor stocks and software-as-a-service, while Clode of Janus Henderson is looking at energy, cybersecurity, and artificial intelligence. Clode is also looking for areas that could be resilient in a recession, like software companies that could help with productivity.
“Two years ago, we could have pretty much won if we threw a dart at a FAANG dart board, right?” Synovus Trust Co. senior portfolio manager Dan Morgan asked, “Do we just blindly throw money into an ETF that only buys FAANG?” That probably is no longer going to work.
