Technology stocks over time will surely win

 Technology stocks over time will surely win

Wall Street investors think that the period of pouring money into technology stocks is easy to sit idle waiting for prices to rise.

After a week of massive price volatility, investors are rethinking their approach to tech stocks. They sifted through the winners and losers more closely to find companies that could thrive this year.

The Wall Street Journal quoted some investors as saying that the time for stocks to both increase in price and at the same time attract crowds of fans is over. Some companies have fallen victim to rising interest rates, changing consumer tastes, and overpriced valuations. Companies that failed to meet investors' high expectations paid a heavy price in the market.

Over the past three years, shares of technology giants such as Meta Platforms - the parent company of Facebook, Apple, Amazon, Netflix and Alphabet - the parent company of Google, have all made big gains. But since the beginning of the year, all 5 stocks have decreased.

NYSE FANG + index movement. Graphics: WSJ

NYSE FANG + index movement. Graphics: WSJ

The NYSE FANG+ index, which tracks these five stocks among others, is down 10% this year, worse than the overall market. Some stocks in this group, like Netflix and Meta, are down at least 38% from their most recent peak. In contrast, the S&P 500 fell only 6.2%.

"This group of stocks has been very strong for more than 10 years. But this time is starting to appear cracks," Amy Kong - investment director of Barrett Asset Management, commented.

One of the biggest causes of the drop was Meta's disappointing financial report. Investors immediately reacted, causing the social networking giant's market value to drop by more than $230 billion - a record for an American company in a single session.

Kong also holds shares of Meta and other tech giants. She is waiting for the opportunity to sell some shares of Meta. Still, Kong remains upbeat about other big tech firms, thanks to solid financial data.

Instead of the massive growth seen in previous years, some tech CEOs are warning of a decelerating future. Meta admits people are spending less time on their top-grossing services, so revenue growth is expected to slow. On January 20, the Netflix CEO said that the number of new subscribers this quarter will be lower than expected.

Netflix shares fell 22% on Jan. 21 - their biggest one-day drop since 2012. The recent drop contrasts with the company's massive gains in the first year of the pandemic. Similar to Facebook, they used to benefit when people stayed at home a lot due to social distancing.

However, the financial report season with the poor earnings outlook is not the only reason pushing down the price of technology stocks. This sector has been reeling since the beginning of this year, as many investors braced themselves for the US Federal Reserve (Fed) to raise interest rates and rethink their portfolios to pour money into potential channels. another flourish.

That pushed bond yields to their highest levels since 2019, driving investors away from the tech sector. Higher yields can reduce the attractiveness of these stocks, as they lower future returns for investors.

In the coming days, investors will be watching reports from tech companies like Twitter and Uber for signs of slowing growth. "You start to see that momentum in tech stocks is falling," Kong said.

Since the beginning of the year, Netflix and Facebook shares have lost about 30% of their value. Amazon shares still fell 5.4% despite a strong rally last week. Apple and Alphabet lost 2.9% and 1.1%, respectively. However, in the past week, shares of some big technology companies have recovered. The NYSE FANG+ index added 3.1% and the Nasdaq Composite outperformed the S&P 500.

There are many signs that individual investors are turning. According to research by Vanda, Tesla, Advanced Micro Devices and Nvidia recently recorded the largest net inflows from individual investors of any time since September 2020. Investors favor the trio over stocks like Facebook, Amazon, Microsoft, and Alphabet.

Daniel Morgan, Senior Portfolio Manager at Synovus Trust, thinks it's time to throw money at tech stocks and watch them go up. The mentality has changed significantly now compared to the time when just buying FAANG (Facebook, Amazon, Apple, Netflix, and Alphabet) was enough. "Half of the stocks in the FAANG group are not doing very well," he said.

FAANG fans have also adjusted. They add Microsoft stock to their portfolio along with Meta, Amazon, Apple, Netflix and Alphabet. According to them, holding all six of these tokens should ease some of the losses somewhat. Dow Jones Market Data said that the portfolio of FAANG stocks by market capitalization only suffered a loss of 8.1%, lower than the Nasdaq Composite's 10% this year.