Tech stock tumble tops $36 billion: what’s next for shocked investors
Sharp falls in share prices of many of Australia’s biggest tech companies have stunned investors, and their outlook is cloudy. See who the worst performers have been.
Investors who worry that their technology stocks have turned from 2020 darlings to 2021 duds should brace for some more financial pain.
Despite the overall sharemarket trading close to record highs, several popular tech stocks have slumped by more than 30 per cent in value in recent months, and investment analysts believe they have not yet bottomed out.
They say many remain quality companies that will perform strongly in the future, but warn that global forces have pushed them lower and this could continue for several months.
Fintech company Afterpay boomed last year to become one of Australia’s 20 largest companies, but since February has dropped 40 per cent and almost $19 billion in value. Fellow buy now, pay later stock Zip Co has fallen even harder, down more than 45 per cent.
One of the worst tech performers on the ASX lately has been artificial intelligence and machine learning company Appen, which has more than halved since August amid slowing revenue growth and some global tech companies cutting back on AI spending on advertising.
Ten of Australia’s biggest tech stocks have lost more than $36 billion of value between them.
Analysts say forecasts of rising inflation and economic growth globally have improved the future earnings prospects of other stocks at the expense of tech, and eToro market analyst Josh Gilbert said there could be further downside to come.
“This market downturn demonstrates the importance of portfolio diversification,” he said.
“If your portfolio contained only tech stocks, the recent correction would have affected it significantly.
“Instead, investors should opt to diversify their portfolios with other booming sectors of the market, such as financials and energy. These sectors benefit from a recovering economy, as they are more sensitive to the economic up-cycle.”
Baker Young managed portfolio analyst Toby Grimm said the market was going through a “painful repositioning”.
He said tech stocks had been a favourite of investors during flat economic times because of their ability to generate growth.
“But now the world in general is getting growth elsewhere – it’s no longer just technology and health care that can deliver double-digit earnings growth,” Mr Grimm said.
Many other stocks and sectors were not as overvalued as technology, which had “gone from the only house on the street to a relatively expensive house on a suddenly-attractive street”, he said.
“A lot of technology companies are good businesses and are going to generate growth – it’s just that are they worth what people were paying for them?”
Mr Grimm said his firm was starting to see some potential bargain buys looming among tech stocks “but the trend is strong in the market at the moment and in the near term we think the pressure will keep on them”.
“I think we’re getting close, but we’re not there yet.”
Portfolio manager Chris Conway from investment newsletter Marcus Today said it could be six months before the tech tumble finished.
“The reason people buy them, for future earnings, is less attractive,” he said, and has been selling buy now, pay later stocks.
“We still like the space, but let’s look at it realistically,” Mr Conway said.
“They swim one way too hard, then overcorrect the other way.”
Other tech stocks’ prices had “got ahead of where they should be in terms of reality”, and Australia’s relatively small tech sector could create problems, Mr Conway said.
Investors had seen tech stock success in the US and wanted to replicate that here, he said. “So everyone piles into a crowded trade.”
This is illustrated by the fact that shares in US tech giants such as Apple, Amazon, Facebook and Microsoft are trading close to their recent record highs.
An exception is Tesla, the electric car and solar energy giant founded by billionaire Elon Musk. Since January Tesla’s share price has slumped almost 40 per cent, which ended Mr Musk’s brief reign as the world’s richest person.
TECH STOCKS HIT THE HARDEST
(Share price falls from recent highs)
Appen downê70% ($3.7bn)
Kogan.com down ê 66% ($1.7bn)
Zip Co down ê49% ($3.8bn)
Afterpay down ê40% ($19bn)
Altium down ê34% ($1.7bn)
Pushpay down ê30% ($718m)
NEXTDC down ê25% ($1.5bn)
WiseTech Global downê 24% ($2.5bn)
Carsales.com down ê21% ($1.1bn)
Megaport down ê20% ($500m)
Source: S&P ASX All
Technology Index
More Coverage
Why more investors put their money before the environment
Sustainable investing has been a growth area in recent years but a new study suggests some people are putting it on the backburner.
Why investors will bolt if property taxes change
Tinkering with property taxes drives investors out of the market – it’s just happened in New Zealand and now Canberra is looking at a very similar picture.