As tech investors brace for volatility the experts say there’s no need for panic

Tech investors are feeling on edge thanks to the major sell-off but industry experts are confident that the downturn won’t endure.

Visitors walk past an Amazon exhibition booth during the World Artificial Intelligence Conference in Shanghai in July. Picture: AFP

The world’s biggest tech stocks are going through an overdue price correction after a massive sell-off in US markets but are still expected to grow over the long term and investors should not panic, venture capitalist Paul Bassat says.

The “Magnificent Seven” – Apple, Tesla, Alphabet, Amazon, Nvidia, Microsoft and Meta Platforms – at one stage lost more than $US1 trillion of value collectively during trading on Monday, before paring losses to end the day down about $US650bn.

The co-founder of online employment platform Seek and Square Peg Capital said the shares of technology companies often went through bigger swings than others.

“We periodically see listed technology markets go through periods of significant volatility,” Mr Bassat said. “The volatility over the last few days is probably a four or five out of 10 to date in terms of scale.”

But he said there was “no sign of any panic in markets”.

Venture capitalist and investor Paul Bassat. Picture: David Geraghty

He said the latest correction had followed a period of “very strong market performance for the Magnificent Seven and other mega cap technology stocks”.

“We are seeing a strong period of business performance from most technology companies,” he said.

“Ultimately this is what drives long-term performance of individual companies and markets broadly.”

He said listed tech companies outside the Magnificent Seven were now “as good value as they have been for many years”.

Venture capital investor Daniel Petre, the founder of AirTree Ventures, said the share prices of the Magnificent Seven companies were still up by 20 to 40 per cent over the year.

He said the markets had reacted to earnings news which showed that the earnings outlook for some companies was not as strong as had been priced into the shares.

Mr Petre, a former Microsoft executive, said that in some cases share prices of companies had been marked down even if earnings growth was only slightly slower than expected.

He said there was also a change in sentiment in the market: being more critical of tech companies that were still growing but were not reporting profits, like US-listed software company Atlassian.

AirTree Ventures founder Daniel Petre. Picture: Stuart McEvoy

“In the past the market has been focused on growth rates only (for tech stocks) but it is now focusing on earnings.”

He said tech companies that were growing but still “burning cash” could expect to see a further correction in prices.

He said the valuations of some tech stocks had come down to more “rational” levels.

But he said there could be a further slide in the price of companies that had “crazy valuations”, particularly because of expectations of revenue from AI.

“Some companies outside the Magnificent Seven may see a further slide,” he said.

“I think the AI correction (for these companies) is still to happen, particularly for the ones who are not delivering earnings growth.”

He said there had been a need for a correction for some time, and US inflation figures and the latest earnings forecasts for tech companies had provided “a reason”.

He said many of the big tech companies were still reporting strong earnings growth even if a little lower than expected.

Alex Pollak, the founder and chief investment officer of ASX-listed global fund manager Loftus Peak, which has a strong bias to US tech stocks, said he felt the correction in tech stock prices had “got a bit ahead of itself on the downside in the last few days”.

He said he felt the market was “a bit spooked” by news that Warren Buffett’s Berkshire Hathaway group had sold down its holdings of Apple.

He said Loftus Peak had sold out of Nvidia and Apple by the end of the financial year as of June 30.

Loftus Peak chief investment officer Alex Pollak. Picture: Britta Campion

But it still had holdings in companies such as Qualcomm, Taiwan Semiconductor Manufactur­ing, Amazon, Alphabet, Microsoft and Meta Platforms.

He said sentiment in the US market had turned negative in the past week.

While he said there was concern that the prices of stocks such as Nvidia had got ahead of expected revenues, due to market expectations of earnings from AI, “it’s not like a bubble is bursting”.

He said the sudden turn in sentiment in the US market was due to concerns that the country could be facing a recession, but the pessimism about the economy was overdone.

“You can’t go from having a market which thinks the economy is really good to one where it is saying the Fed needs to cut rates many times, in a few days,” he said.

“For that to happen there has to be some sort of underlying crisis going on – and I don’t think we have it.

“There is no need to panic.”

He said investors needed to assess the situation facing each tech company separately in terms of share price and expected revenues.

He said this had led Loftus Peak to sell down its shares in Nvidia in the June quarter but still retain holdings in a broad range of other US tech stocks.

Tribeca Investment Partners portfolio manager Jun Bei Liu. Picture: Jane Dempster

He said Loftus Peak had taken the view that the market was paying too much for the expected revenue growth in Nvidia from AI.

He said his fund did not hold any Apple shares as it had “got a bit ahead of itself valuation-wise.”

But he said he still expected the use of AI to grow and generate more revenue for tech companies.

“I personally am using AI every day to do things,” he said.

“It is being used in many underlying applications.”

He said a further fall in tech stock prices on Wall Street could create buying opportunities.

Search engine company Google, for example, which is owned by Alphabet, had a very strong market position which had recently been described by a US court judge as a monopoly, he said.

Tribeca Investment Partners portfolio manager Jun Bei Liu said the prices of many US tech stockswere still much higher than at the start of the year.