Bloomberg
OpinionParmy Olson
Tech Stocks Are Entering an Age of Uncertainty
Facebook, Netflix, Zoom and others are suffering in the markets as investors reassess their lockdown darlings. But they will rise again.
Tough transition.
Tough transition. Photographer Justin Sullivan/Getty Images
By barmy Olson+Follow
May 9, 2022, 3:30 PM GMT+5:30
In the two decades since the dot-com crash, investors have been bracing themselves for another bubble to burst. Yet year after year, tech firms like Facebook and Alphabet Inc. continued to enjoy uninterrupted expansion and unwavering faith among their investors that it would continue. Even the financial crisis of 2008 barely registered as a blip. But now there is serious talk among entrepreneurs and investors that the correction everyone feared might finally be happening. In the two decades since the dot-com crash, investors have been bracing themselves for another bubble to burst. Yet year after year, tech firms like Facebook and Alphabet Inc. continued to enjoy uninterrupted expansion and unwavering faith among their investors that it would continue. Even the financial crisis of 2008 barely registered as a blip. But now there is serious talk among entrepreneurs and investors that the correction everyone feared might finally be happening. Given how intrinsically technology is woven into our lives — and how it will pioneer new avenues through augmented reality, streaming services, artificial intelligence and more — the broader tech boom of the past two decades seems set to continue in the long run. But investors for now must navigate something novel: uncertainty.
Already, the Nasdaq 100 has declined about 23% since November 2021. That is as steep a drop as it experienced in March 2020 with the onset of global Covid-19 lockdowns. If it slides a couple percentage points more, that will mark its biggest decline ever in a single year. So-called FAANG stocks, including Facebook parent Meta Platforms Inc., Apple, Amazon, Netflix and Google, had on Friday lost roughly $2 trillion in value since the start of the year. It’s worth noting that the markets have never experienced a transition from a global pandemic that made millions of people housebound. There is no historical reference point. Now companies and investors are trying to process an explosion of pent-up demand, where consumers have rushed out of the confines of their homes to buy things in physical stores and plan “revenge travel.” The Walt Disney Co. has had more visitors to its theme park in Florida than it did pre-pandemic. As companies hurt most by the pandemic see their fortunes swing back into positive territory, tech’s lockdown darlings are suffering from a reassessment of value that arguably looks overdone for some. Take Spotify Technology SA. On Friday, shares in the music-streaming pioneer were trading at an all-time low of $105, and down 57% since the start of the year, despite just reporting its biggest growth in profit in the last quarter and 15% annual growth in subscribers to 182 million. Zoom Video Communications has lost 45% of its value since the start of 2022, despite steady quarterly net-income growth.
But while not everyone deserves to suffer from a broader correction, it was bound to happen. Many tech valuations were indefensible. Should Tesla Inc. really be worth more than six times the combined market value of General Motors Co. and Ford Motor Co.? And considering that it took nearly four decades for Apple Inc. to reach a market valuation of $1 trillion, should it have taken fewer than four years to hit $3 trillion
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