"Is the Sharp Drop in Tech Stocks Temporary or a Sign of Further Decline? Diverging Views"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Investors have mixed views on the technology stocks in the U.S. New York stock market that have been plummeting relentlessly this year. While some see the tech stocks, which soared during the ultra-low interest rate era caused by COVID-19, as undergoing a temporary correction, others analyze that further declines are imminent.

On the 8th (local time), The Wall Street Journal (WSJ) reported this in an article titled "The two-year growth streak of the tech industry is sputtering." It is evaluated that companies in sectors such as e-commerce, digital advertising, electric vehicles, ride-hailing services, and food delivery, which rapidly expanded after the pandemic, have hit growth limits after two years.

Looking at the trend of tech stocks, Peloton and Lyft have plunged more than 50% since the beginning of this year, and large tech stocks such as Netflix, Meta Platforms (Facebook’s parent company), and Amazon have also fallen more than 30% compared to the start of the year. Considering that the S&P 500 index fell 13% during the same period, it can be interpreted that big tech stocks have suffered greater damage.

Kevin Holt, Senior Portfolio Manager at Invesco, told WSJ, "The market has been enjoying a boom recklessly," adding that investors have started to reflect on whether they overly focused on growth during the historically low interest rate period. This implies suspicion has arisen that the appropriate valuation of tech stocks was not properly assessed by only considering the historically low interest rate environment.

In fact, big tech companies like Amazon and Meta have recently announced hiring freezes or plans to reduce their workforce, lending weight to concerns about their growth prospects. Companies such as Netflix and Robinhood, which had strong performances during COVID-19, are conducting layoffs.

However, the recent weakness in tech stocks appears to be influenced not only by valuation issues of the tech stocks themselves but also by a combination of factors including rising inflation, interest rate hikes, normalization of offline store operations, Russia’s invasion of Ukraine, and additional supply chain disruptions caused by China’s COVID-19 lockdown measures. Mark Stockl, Chief Investment Officer (CIO) of Adams Funds, told WSJ, "Investors want to avoid risk. The tech sector is the easiest target for risk aversion," adding, "Most of these stocks were built on the assumption that the coast was clear as far as we could see, but that is no longer the case."

Some investors plan to avoid pandemic-driven demand stocks such as semiconductor fabless companies and invest in other sectors, WSJ reported. Even within tech stocks, fortunes may vary by company. Robert Shine, CIO of Blankyshain Asset Management, said he would mainly focus on established tech stocks with strong financial conditions and defer investing in new startups with poor performance.

This content was produced with the assistance of AI translation services.