Big technology stocks have had three rough weeks, triggering the tech collapse of 2000. But as the pandemic drags on, analysts are optimistic.
The Big tech’s sell-off and mini-bounce back since its initial drop in early September sparked debate over whether this pattern continues or ends in a few weeks. Apple (APPL) stock fell roughly 18% from its intraday high of about $138 on Sept. 2, and the tech-heavy Nasdaq composite index dropped about 10% in September. Google’s parent company, Alphabet (GOOG), closed at $1459.99 Friday, down 11% in September. Facebook (FB) also fell to $252.53, down 6.4% from Sept. 1.
Still, analysts said that the tech sector has a bright future.
“I think tech stocks are going to move higher in the next six to nine months,” said Dan Ives, managing director of equity research at Wedbush Securities.
The Covid-19 crisis has continued longer than six months and permanently changed some people’s behavior, speeding the growth of e-commerce, digital platforms, and the sales of digital devices. As long as that momentum continues investors looking at the future of businesses throw their money on the table, tech stocks are promising.
“The work-from-home dynamics have really accelerated the tech,” said Ives. Pull-back for “healthy correction” is happening in the market, he added, but there is a lot of space for the growth in the tech sector.
Ives was not the only analyst who pointed out that the big tech companies can grow even bigger.
E-commerce became essential for retail companies to sell products amid the pandemic. Investors and analysts say digital advertising will become more important as customers get used to online shopping, and the stock market reflects that prediction.
“Facebook and Google dominate digital advertising stuff,” said Craig Huber, equity research analyst at Huber Research.
In addition, “the multiple extensions of almost everything in technology, including FAANG, Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG), over the last 12 months,” are likely to be permanent, said Michael Levine, senior research analyst at Pivotal Research, who focuses on the internet and media stocks.
In other words, given the length of the pandemic, consumers have discovered not only the convenience of ordering through apps but also their productivity in virtual meetings and online collaboration. Changes in work habits and the increase of productivity have driven up demand for digital products, and therefore the value of the tech companies.
“With a high degree of conviction, I will never go back to the prior level of business travel given how long this pandemic is going on, and how people have basically found working remote,” said Levine. “Executives now know that they are able to have 30 meetings in a day without getting flights. It’s a productivity increaser.”
A scarcity of growth stories has accelerated in the COVID era and many concentrated in tech. The current tech sell-off cannot be seen as a sign of a bear market, but rather as just a few days’ skids.
In addition, investors have no promising alternative except the eye-popping growth and the bright outlook in the tech sector.
“The Fed says that they are going to stay the interest rate basically at zero until 2023,” said Levine. “Then where else can you make a return on your money?”