Tech stocks cap off worst year since Global Financial Crisis

Global investors felt the pain from the sector’s worst performance in 14 years with more than 30 per cent falls on Wall Street and the ASX in 2022.

Elon Musk is no longer the world’s richest man after Tesla market losses erased $107bn off his fortune. Picture: Robyn Beck/AFP

Consumers may be lining up for shiny new Apple iPhones but investors are not, as tech stocks cap off their worst year since the Global Financial Crisis.

The sector’s heavy losses drove Wall Street’s Nasdaq Composite Index down 33.10 per cent for the year, to 10,446.48 points — its second-worst result since the dot.com bust of 2000 wiped 40.5 per cent from the index’s value. It was surpassed by the 39.23 per cent fall of 2008.

Apple’s shares sank 26.8 per cent during 2022 — to a market capitalisation of $US2.1 trillion ($3.1 trillion) — with the losses compounded by supply concerns amid the key Christmas holiday period.

Production halts at a major iPhone plant, operated by Foxconn in China have sparked a shortfall of Apple’s marquee product, with capacity understood to be operating at 70 per cent and lagging demand, particularly for more expensive pro models.

Still, Apple was a modest outperformer compared with its largest peers, after carnage ripped through the technology industry, as higher interest rates crunched balance sheets and slashed forward earnings estimates.

Facebook owner Meta slumped 64.2 per cent for the year, while Amazon tumbled 49.6 per cent, Salesforce plunged 47.8 per cent, and Adobe slid 40.7 per cent.

Class A stock in Google owner Alphabet fell 39.1 per cent, and Microsoft slumped 28.7 per cent.

The tech sector’s market performance over the past 12 months has been the worst of any industry, amid a vastly reduced risk appetite from investors.

Of the Nasdaq’s 3668 member stocks, 2613 ended the year in the red.

Even Elon Musk, who adopted the title Chief Twit, is no longer the world’s richest man after Tesla dived 65 per cent — its worst annual performance ever — wiping $107bn off his fortune.

Big technology companies — from Amazon to Facebook owner Meta – have been forced to grapple with lay-offs and challenged valuations after what was a prolonged stretch of positivity and growth,although some analysts are looking to 2023 with optimism after a torrid year.

The pain was equally felt in Australia, with previous market darlings like Megaport and Xero facing widespread sell-offs and double-digit drops to their market capitalisations.

Melbourne-based creative marketplace firm Redbubble was the worst performing tech stock of the year, plummeting 84.1 per cent in 12 months, followed by battery technology company Novonix – down 84 per cent – and Dubber, a call recording software company, shedding 82.4 per cent.

EML Payments, Symbio, Appen, Nuix, and Whispir were also among the year’s poorest performers.

Only seven stocks on the ASX’s all-technology index ended the year in positive territory, with the index down 32.8 per cent for the year. The index is still up by just over 12 per cent over the past five years, however.

Silex, Computershare, Data#3, Weebit Nano, Brainchip, Technology One and Elmo Software are each worth more than they were 12 months ago.

Saad Siddiqui, general partner at Telstra Ventures — the telco’s venture capital arm — said overall, start-ups would need to grow by 2.5 times in 2023 just to get to the same valuation as they did in 2021.

“On top of that they will need to show impeccable unit economics and management teams will need to manage their burn as they work on becoming more efficient.”

But Josh Gilbert, analyst at stock and crypto trading platform eToro, said that 2023 could bring better news for some of the tech companies that were hardest hit in the last 12 months.

“Some of the worst-performing names in tech, such as Block, Megaport, Xero and Novonix, could see better fortunes next year as investors slowly nibble away at discounted tech, as investors look at slowly re-risking,” Mr Gilbert said.

“It was a torrid 2022 for tech stocks, locally and across the pond, but a mix of lower inflation and a pause from central banks tightening cycle might create a better environment as we head into 2023.

“Forward-looking investors will see this mix as the groundwork for the next bull market and might be considering a slow addition of quality risk back into their portfolio.”

Looking globally, Mr Gilbert said that high-profile tech sector lay-offs, from Amazon to Twitter, have surged to 135,000 globally at 850 companies and investors are worried about a white collar-led recession.

“This is unlikely,” he said. “The sector employs too few, is still hiring, and the lay-offs are their own idiosyncratic drivers. The tech sector is seeing a double whammy of normalising post-pandemic growth and sharply lower bond-yield driven valuations.

“‘Tech’ is over a third of the S&P 500 index but only 3 per cent of the US labour force in another stark reminder that stock markets are not economies.”

In a recent report Royal Bank of Canada markets analyst Garry Sherriff said that inflationary pressures were weighing heavily on the nation‘s tech sector.

“Employee costs represent on average more than 70 per cent of our technology coverage opex and remain the largest cost component across the sector,” he said in a research note.

“Channel checks continue to point to a shortage of highly skilled engineering, product and R&D technology talent. Continued supply chain constraints are leading to delays in ordering core components and equipment, and higher commodity and employee costs are increasing construction costs and delivery times for major capital building projects.

“These global inflationary pressures are all occurring in an environment of rising interest rates, which is likely to impact demand over the coming 12 months.”