Tech stocks fall amid growing concerns
Investors for years have seemingly adored technology stocks as much as most people love their smartphones.
But Wall Street has suddenly soured on Silicon Valley and the rest of tech, triggering a stomachchurning downturn in a turbulent October.
Some of the hardest-hit stocks belong to five companies – Facebook, Apple, Amazon, Netflix and Google. They have collectively attracted billions to their products, carving out lucrative markets they each dominate in an increasingly digital world. Investors latched on to their success and gave them their own acronym, “FAANG.”
What a difference a month makes. Since the end of September, individual FAANG stocks have plunged between 4 percent and 20 percent, collectively wiping out nearly $400 billion in paper shareholder wealth.
The downturn may seem puzzling, given that Apple’s iPhone sales are booming, the online shopping traffic keeps sending more consumers to Amazon, people are constantly asking Google to enlighten and direct them, people keep posting on Facebook and Netflix has never been a more popular entertainment destination.
But these companies are facing rising challenges. President Donald Trump has escalated a trade war with China, for instance, and governments are starting to consider tougher regulation that could curb tech’s influence. Employees at some large tech concerns are increasingly restive about their companies’ contributions to military and immigration-related projects.
Much of that contributes to concerns that the tech companies won’t be growing as much and as quickly as investors had expected. “We are starting to see ‘fork-in-the-road’ situation for technology,” said Wedbush Securities analysts Daniel Ives.
Investors are betting it will be a bumpy road. The tech-driven Nasdaq index is 12 percent below the high it reached in August.
The big-name tech stocks have been faring so well for so long that investors have been betting on even bigger things to come from the companies. Those wagers might take longer to pay off, or worse, fizzle completely if a slowing economy or a recession undermines their future growth.
Facebook and Google, for instance, might not be able to entice as many new users to their free digital services, and the advertising that generates most of their revenue might shrivel away.
For Amazon, it might mean consumers curtail their spending on merchandise in its e-commerce site or decide they really don’t need an internet-connected speaker like the Echo after all. Netflix might have more difficulty attracting subscribers, and could even start seeing more cancellations if households feel squeezed.
Rising interest rates are also weighing on stock prices, analysts say. Higher rates reduce the present value of future corporate earnings, which in turn undermines the justification for the lofty valuations – and high share prices – of tech companies.