Buying into tech just got trickier
Tide turns as people sell their Apple stock, pile onto Facebook
Being a smart tech stock investor used to be easy. Buy Apple. Forget about it. Then come back later and count your riches. Not anymore. Investors are seeing the realities of a post-smartphone world, where what you do digitally is more important than what device you do it on. That emerging reality was on clear display this week in the diverging fortunes of Apple and the nimbler and more cloud-focused companies like Facebook, LinkedIn and Amazon.com.
Apple, the most valuable stock in the world, took a 7% stock value hit this week after the gadget maker reported a 12% drop in quarterly revenue to $50.6 billion during the quarter. That was the biggest decline in revenue since the third quarter of 2001. At the same time, Facebook and Amazon both blew away expectations and underscored an important sea change for tech investors. Facebook’s revenue surged a blistering 52% to $5.4 billion and Amazon’s jumped 28% to $29.1 billion.
“The overarching trend in tech is to be cautious when it comes to the crowned winners like Apple,” says Doug Sandler, chief U.S. equity officer at RiverFront Investment Group. “People at the top of the heap have everyone gunning for them. It’s hard to stay there.”
The numbers that really show the shift following the earnings reports this week are the values investors place on these companies. In one week Apple lost nearly $60 billion in market value, Amazon soared $26 billion, Facebook gained $18 billion and LinkedIn rose $470 million.
Apple had some company, in terms of big tech stocks getting hit. Google parent Alphabet and Microsoft shed $22 billion and $15 billion, respectively, in market value last week following their earnings misses on revenue and earnings. All told, the Tech- nology Select Sector SPDR ETF exchange-traded fund is down 0.8% this year so far. That makes tech the third worst-performing sector this year following financials and health care.
Even so, the broad market can perform quite well and continue to push toward its highs, without the help of technology, Sandler says. Investors also worried the market would swoon as financial stocks struggled in the wake of the financial crisis. But that didn’t turn out to be true. The market can move higher even if the largest tech stocks struggle, he says.
“The market can work without tech. That doesn’t concern me,” Sandler says.
“People at the top of the heap have everyone gunning for them.” Doug Sandler, RiverFront Investment