Surveys show that Wall Street analysts’ attitudes toward technology stocks have changed rapidly since last year, with many downgrading their ratings.
However, several analysts believe the long-term bullish side of some low-valuation tech stocks could regain focus in the future, with historical data suggesting tech stocks are more likely to rally when U.S. economic growth and debt levels remain low.
Wall Street turned its most bearish on technology stocks in a decade
According to the latest Bank of America survey released this week, Wall Street fund managers have been downgrading tech stocks, with the number of ‘overweight’ in the U.S. tech sector at its lowest level since January 2009. The survey found that while 34 per cent of fund managers still view being long tech as a crowded trade, that is down from 80 per cent in the survey on September 20 last year.
Wall Street’s bearish attitude toward technology stocks has been reflected in the past month. Over the past month, there has been a marked selloff in technology stocks, which were strong last year. The US Fang + index, which tracks the performance of leading tech stocks such as Facebook, Apple and Tesla, is down 8 per cent since hitting a new closing high on February 17. Individual tech stocks have sold off even more sharply, with shares of Tesla down 13 per cent, Salesforce down 14 per cent and Zoom down 24 per cent in a month.
“The core idea in this tech bear market is that these high-value tech stocks are technically unstable and not supported by traditional valuations,” said Dan Ives, a tech analyst at Wedbush. He added that the shares were now going through a “painful and brutal period of valuation digestion”.
Still need to pay attention to some of the technology stocks long-term positive factors
Eavis pointed out that some low-valuation tech stocks have not changed their long-term positives and are likely to come into focus in the future.
The most obvious is in cloud computing. This shift is only likely to intensify as financial budgets are loosened in the aftermath of the COVID-19 epidemic and companies shift to a mixed workforce, from a predominantly full-time workforce to a mix of full-time, part-time, temporary, and remote workers.
“Currently, we estimate that only 35 percent of enterprise workloads are in the cloud, but by 2023, the percentage of cloud computing workloads is projected to double, which is an eye-popping trend. “While the market is still debating stock valuation, the underlying growth in next-generation technologies will be unprecedented as the Fourth Industrial Revolution begins.”
Ives is particularly bullish on the prospect of companies like DocuSign, Zscaler, Microsoft, Salesforce, and Nuance moving into the cloud.