05 August 2024
If you are covering the global stock market falls and the sell off in tech stocks, please find below a comment from Ben Barringer, technology analyst at Quilter Cheviot:
“When valuations are as high as they are for the big tech stocks, any blip is likely to cause shockwaves. Investors need to be prepared for this and be comfortable with the reason they are investing in these stocks in the first place. The news out in the last week and over the weekend would point to a slight overreaction in the movement in tech stocks, with Nvidia’s delays with its Blackwell product flagged well in advance of this more formal announcement. While delays to new product lines are never ideal, Nvidia can still sell its current Hopper product.
“Apple, meanwhile, has seen Warren Buffett half his stake in the company adding to the negative sentiment out there. Buffett has historically bought Apple with a valuation in the low 20s and sold it when it is in the low 30s. Apple is going through somewhat of a transition phase just now and while there are exciting developments in the pipeline (Apple Intelligence), these are not yet revenue generating, and this makes it vulnerable to extreme market movements.
“The bigger concern for tech companies, and semiconductors in particular, is that this is a cyclical industry. Demand will impact sales and thus any slowdown will filter through to some of these tech giants. The macroeconomic data out last week is pointing to a more extreme slowdown than had been anticipated, putting into doubt the coveted soft landing the Federal Reserve is after. As such, the next few weeks is likely to be a volatile one for tech stocks as this new environment plays out.
“In these sorts of scenarios, investors need to be careful. While there is nothing fundamentally wrong with these businesses, when sentiment begins to sour the falls become more extreme than perhaps they should be. There are opportunities to buy quality companies that have strong underlying fundamentals, but you need to be selective. However, it is worth remembering that these companies have risen to the top due to their delivery and potential, and this is unlikely to shift dramatically overnight.”
