Is This The End Of Tech Stock Bull Run?
Amazon reached a market capitalization of one trillion dollars a week ago, since then shares have dropped almost 3%.
Twitter has also experienced a downfall in its share price. Since the CEO of Twitter, Jack Dorsey, went to Washington Twitter shares have been down 10%.
Facebook has also witnessed a decrease in share price, around 3% this past week. This can be attributed to Facebook’s COO’s testimony about Russia’s use of social media to try and impact the 2016 presidential election.
That’s not all for the FAANG stocks, as we have seen Netflix, Alphabet and Apple all have drops in their share price.
So, what is causing this decrease in the stock price of these tech monoliths? One factor impacting the stock price is trade-war talks. Apple has already announced that if the U.S. imposes tariffs on Chinese products then its profits will be hurt and this will cause the price of the Apple Watch and AirPods Wireless headphones to increase. Around 70% of Apple’s profits comes from the iPhone. The iPhone price will not be increased, but if it does in the near future then the stock price may be decreased even further.
Stocks like Tesla have other factors in play to determine their decrease in stock price. Today, Tesla announced that they will be removing two of seven colors that customers can choose from to have their Model 3 in. This may be a sign that Tesla is struggling to meet delivery targets, which is bound to decrease the stock price even further down the line.
Tech stocks have had great liquidity for most of this year. On a year-over-year basis, many of the largest tech stocks are still performing well. Apple’s stock price is up 30% this year, Netflix is up more than 80% and Amazon stock is also up (by 65%). So it is clear to see that tech stocks are far from doomed, “but it’s time to be more selective”.. says Summit Global Investments portfolio manager, Aash Shah.
He also said that a few tech companies are overvalued, including Netflix and Amazon. He added that these two companies are trading at “insane” prices when considering the competition in the streaming world and the huge outflow of cash that Netflix spends on original shows.
Shah finished by saying that his firm owns stocks that are mature and are priced more accurately. This includes companies like Microsoft, Alphabet, Cisco and Apple. Unlike some of the newer tech companies, these ones have healthy long-standing profit reports and some even pay dividends.
In answer to the question, “is this the end of the tech stock bull run ?”.. The answer is most likely NO, but once trade-war talks simmer, we will get a more accurate representation of many tech stocks.
Lots of traders will invest in stocks with a low stock price, especially if those prices are lower than usual. Meaning, undervalued stocks. This is great when it pays off, but when the stock price is decreasing there is risk that it will keep decreasing, causing losses for shareholders.
Some investors are looking at companies such as Twilio and DocuSign as better tech stock options. The reasoning is that these companies are growing fast in a market that could produce huge upside in the future (cloud computing).