The big tech sell-off isn’t over in 2022 as investors prepare to lose profits that could lead to a more than 10% drop in the Nasdaq 100.
More than two-thirds of the 914 respondents to the MLIV Pulse survey believe that profits for tech companies will disappoint the market throughout 2022.
Companies, including Alphabet Inc’s Google subsidiary, are at risk of advertisers cutting spending as the global economy struggles, while streaming services, including Netflix Inc, face a mass exodus of price-sensitive subscribers as consumers tighten their belts.
The Nasdaq 100 is down about 31% so far this year, wiping out trillions of dollars from market value, as investors reassess the post-pandemic value of many business models. Higher interest rates hit stocks and reduce the value of their future earnings. Inflation drives up costs, while a strong dollar weighs on profits and the risk of recession increases.
Retailers such as Amazon.com Inc. Some of their direct responses to the Covid-19 pandemic — such as massive investments in warehouses and personnel to pack produce in them — are coming back to bite.
Apple said it will raise the price of its App Store purchases across Asia and countries that use the euro, as the value of foreign currencies against the dollar collapses. Microsoft lowered its forecast due to currency strength in June.
And in July, Sony Group Corp. warned investors about the impact of the global economic slowdown, especially in Europe, and the negative effects of a strong dollar on its financial results. The Bloomberg Dollar Index, which measures the performance of the US currency against 10 leading global currencies, has set a new record since those announcements were made.
Technology earnings are expected to lag behind the S&P 500 in the third and fourth quarters. Info tech’s earnings per share are expected to decline 6.6% year-over-year in the third quarter, compared to a 3.2% increase for the S&P 500 overall, according to Bloomberg Intelligence data.
The return on the 12-month Nasdaq 100 futures stock is down about 2.9% since June 1, compared to a 0.8% drop for the S&P 500.
Meanwhile, retail investors and professional investors are also heading to the downside. More than 70% of MLIV Pulse respondents said they know what the metaverse is but it won’t change the way they interact with people and companies over the next two years. The feeling sits awkwardly with how Mark Zuckerberg describes the potential of the metaverse.
He said it was “the next frontier” when the billionaire changed his company’s name from Facebook to Meta Platforms Inc.
His company said investments in Reality Labs, the Meta division that makes devices like virtual reality headsets, cut operating profit by $10 billion in 2021. Computer graphics chip maker Nvidia Corp wants its Omniverse platform to power some of the underlying framework for the metaverse, as Unity Software Inc. does.
Countless tech companies, big or small, have big ambitions for metaverses. However, despite the great promise from industry leaders, MLIV participants are silent in their enthusiasm for its possibilities.
On the bright side, tech companies focused on sustainable and energy-efficient products are likely to benefit from an unprecedented energy crisis in the wake of Russia’s invasion of Ukraine. After Russia restricted natural gas supplies to heavily dependent neighboring countries, electricity prices soared to record levels, and governments grapple with potential economic collapse.
Investors see rising energy bills and fuel scarcity boosting the development of green solutions. Retail companies were the most optimistic, with 63% of survey respondents saying they believed the gas and oil crisis would encourage the development of sustainable electronics. Sixty percent of professional respondents agreed.
“If we invest more in energy efficiency, and we invest more in renewable energy, we’d be better off,” Rachel Kyte, dean of the Fletcher School at Tufts University, said in a TV interview with Bloomberg.
“The nearly 5-fold rise in European gas prices over the past 12 months provides a good tailwind for suppliers of clean energy equipment with companies like SolarEdge or Enphase on track to increase sales by more than 50% this year,” Bloomberg Intelligence Senior Energy said. Analyst Rob Barnett.
Respondents are somewhat more optimistic when it comes to their situation. About a third said they plan to increase their exposure to technology stocks, just under a third said they would reduce it, and the rest said they would remain flat over the next six months.
The technology remains attractive in some metrics, such as the current P/E ratio compared to the 10-year average, while companies like Apple are still great cash generators. Overall, technology is hard to avoid – the S&P 500’s largest sector is at nearly 27%.
Read: These are the most in-demand job skills in South Africa right now