U.S. tech stocks, not so long ago stock market superstars, have fallen.
This descent presents a dilemma for those who hold these stocks directly or through funds. If you supported the Silicon Valley title, should you stay or should you go now?
Are the falls a sign that the party is over, or an opportunity to buy on the grounds that bad news is appreciated?
In the last two weeks, the owner of Google Alphabet, Amazon, Apple, Meta and Netflix – the titans who are considered a barometer for the sector – spoke in detail about the factors that create bad news for their activities. This list includes lower advertising costs, more competition, supply chain problems and the war in Ukraine.
There are other problems. Shares of Meta, the Facebook and Instagram businesses, have fallen 39 percent this year due to regulatory threats – and the popularity of TikTok, a Chinese video app that is considered cooler than Reels on Instagram. The appeal of all technology stocks lies in their future profits.
Meta-boss Mark Zuckerberg promises a stunning 2030 year when his adventure in the metaworld should come in handy.
But higher interest rates make such rewards relatively less valuable. Rates are rising to curb inflation, but if this policy fails, stagflation may ensue, a toxic mix of rising prices and slow growth.
At the beginning of this decade, it was thought that American technology companies, whose power was based on their ability to destroy existing markets, could shy away from adversity.
But a 33 per cent drop this year in shares of Scottish Mortgage, the UK’s best-known technology trust, suggests that opinion is changing.
Ark Innovation, the U.S.’s best-known technology fund, has also fallen in price since January.
Katie Wood, her manager, however, argues that her stock choices are “big” ventures that need to be revived. This is a controversial position.
But it’s easy to forget that some of the stock outages of technology were caused by profits and the belief that the era of hyper-growth is over, not a deeper disappointment.
Amazon’s shares are still 980 percent higher than a decade ago. Despite declining consumer spending, the company is thriving on a cloud computing boom.
Over the past year, sales of this service (which includes all aspects of computing from providing servers and storage) have grown 42 percent at Amazon, as well as at Alphabet and Microsoft. This trend should help you distinguish between technology stocks that should be held and those whose prospects may be limited.
Stephen Yu, manager of LF Blue Whale Growth Fund comments: “There are companies that generate cash that offer hardware, software or services vital to an increasingly digital world, as well as others whose valuation has been driven by speculation rather than solid foundations like Zoom and Pelaton.
“Breaking this substandard stock bubble has led to a drop in high quality stocks.”
The Blue Whale owns Alphabet, Microsoft and the Nvidia semiconductor group. Liu admits that their prices may fall even more. But he says: “Eventually we will see that stock prices will be more indicative of the importance of these companies for a world that depends on technological and digital expansion.”
There is a consensus that recovery will take time, and suggests investing now only for those who have enough resources and love to gamble.
Opinions also differ as to which stocks should be considered high-quality. But Faangs – Facebook, Amazon, Apple, Netflix and Google – which previously summed up the mandatory promotions could be replaced by Manta – Microsoft, Apple, Nvidia, Tesla and Amazon.
They are owned by such popular funds and trusts as F&C, Polar Capital Technology, Fundsmith and Scottish Mortgage (the latter two are in my portfolio).
Scottish Mortgage is betting on various technology firms that are not included in the list, including Byte Dance, the TikTok group.
A trust is a low fee (0.34 percent annual fee) with high risk, not a pillar of a portfolio. If you want to balance, Ben Godsley of Shore Financial Planning offers “extremely diversified” River & Mercantile Global Recovery as well as Polar Global Insurance. In the short term, more unfortunate technology stocks could be the subject of rumors of bidding.
The share of Peloton, a favorite fitness pandemic, is 80 percent lower than a year ago. Potential buyers are said to be Apple or Nike.
The controversy will continue over whether Peloton, a company that sells such a lucrative product as a bike with an app, is actually a technology fund. It is more appropriate to think about the importance of never being too over-exposed to technology, or, indeed, any other sector.
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Bears gnash their teeth at technology titans: buy or run?
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