Last year was definitely one to forget for the major tech names. When I scroll through the share price performance over the past year, it makes for stark viewing. From Amazon (-47%) to Meta (-60%), Apple (-25%) and Alphabet (-35%), the trend was lower. Given the size of such businesses, I don’t expect any to go bust. So I do feel there will come a point at which it makes sense for me to buy. But when?
Reasons for the decline
Some tech stocks had company-specific reasons that led them to underperform a benchmark (such as the Nasdaq 100). However, there were several reasons why tech stocks in general were shunned by investors.
One major factor was the downgrading of economic expectations globally. The process of raising interest rates by central banks to reduce inflation has the side effect of lower growth forecasts for this year and next. This has a negative further impact on big tech stocks that often have lofty valuations based on high future growth plans. With these also revised lower, the share price comes tumbling down as people reassess what the future looks like.
Another factor at play was the traditional rotation of investors out of growth stocks and into more value and defensive shares. This usually happens when people are worried about the stock market and where to invest in general. Growth stocks are seen as higher risk, with greater volatility.
Finally, in recent weeks we’ve had a wave of tech companies announcing redundancies and job cuts. This isn’t a good look for the sector, hence a dreary end to the year.
Both sides of the coin
I do get why people are starting to chatter about buying tech stocks now. From a historical point of view, I could buy at attractive levels. For example, Amazon shares traded close to $82 a few days ago, matching the lows from the pandemic in early 2020!
Also, as a long-term investor, I could take the view that in a few years from now, the stocks should be trading higher than they are now.
But I’m not convinced that the worst is over for tech companies. From a valuation point of view, the price-to-earnings ratios for several companies are still well above the Nasdaq 100 average. The index average is 23, with Netflix at 29 and Amazon at 38.
Further, job cuts have only just been announced. In my experience, there’s more restructuring and bad news to come in the months ahead when this type of news hits the headlines.
Not buying tech stocks now
There will come a time later this year when I feel I will jump in and start buying tech stocks. But as we stand here in January, I don’t think that time is now.
