Since April 2020, technology stocks have led the bull run and the US stock market has reached an all-time high. This was largely due to the US Fed’s liquidity measures and keeping rates low. Now, the environment has changed and the technology sector, especially FAANGM stocks, is the talk of the town in the declining US market. Viram Shah, Co-Founder and CEO, Nested FinanceTake a closer look at why tech stocks are falling, what factors are in their favor and what investors should do now.
Viram Shah’s adoption of technology stock in the current situation
April 2022 was the worst-performing month for the Nasdaq Composite Index after falling more than 13%. This is the biggest monthly fall since the 2008 crisis.
Technology companies have fallen the most during this time. Even well-established companies have seen their share prices fall sharply. If we talk about FAANGM stocks, in April 2022 alone, Meta Platforms (Facebook) fell 16%, Amazon fell 36%, Apple fell 16%, Netflix fell 55%, Google fell 18%, and Microsoft fell 15%. By There is a fear in the market, and so investors are selling some compounders of these assets over the last decade.
Everyone on the street is curious about what is happening and what is in store for these companies, especially some well-known technology companies. Three things happened in the judgment of the overall economy.
First, core inflation is still at a high level of close to 6% in the United States. Inflation has a detrimental effect on costs and wages. The overall wages demanded by employees across the industry increase, which increases the overall cost for the company. Also, in an environment of inflation, people tend to save more as market uncertainty increases, which reduces consumption to some extent. So, some companies are saying they have lost customers and growth is slowing.
Second, the Fed is now seeking to control inflation by raising rates, and the Fed has indicated that they will raise rates further in the near future. In addition, the Fed has indicated that it wants to reduce the size of its balance sheet, which currently stands at $ 9 trillion. The combined effect of the above two actions is that liquidity in the market will decrease. The effect of liquidity is that the flow of money in the economy usually slows down. The consequences of losing liquidity can be manifold, but one of the immediate effects is that funding for startups slows down. This forces the upcoming, new age SaaS companies to cut costs such as marketing costs, media advertising, and so on. This is one of the reasons why some big technology companies have mentioned that growth is going to slow down in the near future Their latest quarterly results.
Third, the effects of the epidemic are diminishing. People are starting to go to the office, and being told, people are spending more time online. Time spent on social media platforms and other forms of digital entertainment will continue to be fragmented. It is unlikely that technology companies operating in these sectors will see the significant growth they saw during the epidemic. Companies cannot grow at a tremendous pace continuously year after year. So it is clear that growth will be slow for some time.
But does this mean that these technology companies will die or have no future?
Absolutely not. Just because growth is slow does not mean that companies will shut down. Numbers tell us a different story.
Apple still has 1 billion users, and Facebook and the App family still serve 3 billion unique users worldwide. Netflix’s platform still has over 220 million subscribers. Google is still leading the way in marketing for products such as Gmail, search, digital advertising, and more. Amazon still provides a platform for more than 9 million sellers
So just because the market is right does not mean that these companies will leave. Of course, growth is slowing down, but it would be a mistake to let these companies down.
Despite market sentiment and last month’s decline, the technology giants’ share price growth over the past ten years is still impressive. So it tells us that this could be the time of the market cycle where investors with liquidity would buy some stocks of well-established technology for the long term when the market cycle would turn and move higher again. Stage.