The great bull run for tech stocks may finally be over.
It’s been a brutal year for Silicon Valley’s leading companies. Shares of Apple ( AAPL ) are down about 16% in 2022, making it the “best” performer among Big Tech’s so-called FAANGs. Facebook owner Meta, Amazon ( AMZN ), Netflix ( NFLX ) and Google parent Alphabet ( GOOGL ) have fared worse, with Meta down 66% this year.
Other Nasdaq titans such as Microsoft ( MSFT ), chip giant Nvidia ( NVDA ) and Elon Musk’s Tesla ( TSLA ) are also down between 25% and 45% in 2022. (The Nasdaq itself is down about 30%.)
The technology sector has been the market leader for years, but there are growing concerns about the future. Recent earnings are not very good.
Liz Young, SoFi’s head of investment strategy, said in a report late last week that third-quarter tech revenue fell 1% from a year ago, and fourth-quarter revisions fell nearly 10% in recent weeks. It could get worse.
“As this is the first quarter of a meaningful tonal change in earnings … I don’t think this will be the last of the margin pressure,” Young wrote. He added that “it is becoming clear that we can see recessionary conditions in some sectors, even if they do not affect all sectors of the economy at least. “Technology is one of these sectors.”
There are also legitimate questions about strategy changes in some companies. For example, Meta is working on augmented and virtual reality, while Netflix now accepts advertising after pledging to be ad-free on its platform.
Wider concerns about the economy and ad spending are weighing on the sector. Many tech giants have already announced layoffs and there is speculation that more jobs could be cut.
Recession worries don’t bode well for consumer spending, which is especially bad for Amazon and Apple. And the tech leaders are all facing stiffer competition—in some cases from each other—as well as from competitors around the world.
With that in mind, this could be just the beginning of a tech bear market.
Todd Sohn, director and technical strategist at Strategas, noted in a report late last week that when tech stocks exploded like the dot-com bubble burst in 2000, it was only after the 2008 financial crisis that tech regained its market role. the leader.
Sohn said technology may have a longer winter ahead, noting that “it’s reasonable to expect that technology may take a back seat over the next few years, while energy, industrials, etc. assumes the same type of leadership role that they later take on. technological bubble.”
Still, some claim the technology will return in 2023. But investors may need to look beyond the FAANG, Microsoft, Nvidia, Tesla and other megacaps.
“Technology is not monolithic. We believe that cybersecurity and robotics have the potential to reverse the economic cycle, given that cybersecurity has moved from supply chain to necessity and that robots are mission critical in combating supply chain challenges, labor shortages, and inflation. , the report said.
BlackRock, owner of the popular iShares ETF family (BLK), recommends several of its own sector funds to play these trends, including iShares Cybersecurity and Tech (IHAK), iShares Robotics and Artificial Intelligence (IRBO), BlackRock. (BLK) Future Tech, iShares Evolved US Technolog (IETC)y and iShares Semiconductor ETFs.
Shawn Cruz, chief trading strategist at TD Ameritrade, owned by Charles Schwab ( SCHW ), said given the high-profile hacking incidents, it should be for corporations regardless of economic conditions as technology investors flock more to cybersecurity.
Cruz said there are some parts of the technology that are trading at more “bubbly” valuations. But cybersecurity stocks like Palo Alto Networks ( PANW ) are more affordable, as well as semiconductors.
In other words, tech investors should be looking for the more boring parts of the sector, not assets with more hype than substance like cryptocurrency. The winners in technology won’t be the ones with the next great idea or app, Cruz said. It’s about providing a service that businesses will need even if the economy is in recession.