The big sale of technology
The big sale of technology
Herbert Stein famously noted 40 years ago that what can not continue can not be remembered, as technology stocks fall after a fantastic nine-year career driven in part by the Federal Reserve. Undoubtedly, Americans want stocks to rise forever, but the sale of technology seems a healthy correction.
Shares recovered on Wednesday, but before then, the Nasdaq, with a lot of technology, had plummeted 12% since its peak in August. The fall of the populations of FAANG-
Alphabet of Apple, Amazon, Netflix and Google, have changed the S & P 500 to a correction zone. Netflix fell 21% and Amazon fell 20% in October.
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They have also seen substantial drops in the share price.
A revaluation of the technology was perhaps inevitable, as prices jumped above profits like LeBron James on Kevin Durant. Amazon's stock in September traded almost 160 times its profits, which was not going to last. But what makes the sale of technology so surprising this month is that it comes amid strong quarterly earnings growth.
Google reported that advertising revenue increased by 20% year-on-year during the third quarter. Revenue from Amazon's subscription service increased 52% during the quarter after raising the prices of its Prime membership. The margins for Amazon's cloud business increased a spectacular 77%.
Revenues from cloud computing increased 76%, and even their sales of Windows software increased.
Undoubtedly, investors are reacting in part to signs of a slowdown in revenue growth and rising costs. Amazon is raising its minimum wage to $ 15 per hour and has projected weaker sales in the fourth quarter. Google's share of digital advertising sales is starting to decline, while the cost of acquiring traffic that pays partners to direct customers to its search engine is increasing. Facebook reported smooth revenue growth as it struggles to squeeze more advertising revenue from its news. It has also hired thousands of new employees to remove violent content and false news. Netflix has gone into a binge of expense and debt.
The greatest systemic concern among investors is smoothing global growth. The fastest growing markets for many US technology companies. UU., Like Netflix and Facebook, are abroad. Amazon is making a great play for India. Like iPhones demand for $ 1,000 in the United States, Apple will need to increase sales of phones and other devices abroad.
Therefore, it is not auspicious that GDP growth in the euro zone should be reduced to a nadir of five years in the last quarter. China's growth is under pressure amid trade uncertainty and rising debt, while emerging markets in general continue to cause fear.
Hostile regulators are also acting as a restriction on growth. European Union privacy regulations make it more difficult for Facebook, Google and
to monetize user data. Brussels, in July, imposed $ 5 billion in fines to Google for dubious antitrust violations and is now investigating Amazon for allegedly using consumer data to undermine local merchants.
Then there is this week's proposal by Chancellor Philip Hammond to tax the revenues of the big technology companies in the United States. More than a dozen other countries, including South Korea and Mexico, are considering their own digital taxes, and do not be surprised if the idea turns on in the US states and cities. UU
The positive side for consumers is that the giants of technology face greater competition. Amazon is starting to get rid of the Facebook-Google digital ads duopoly.
Target and other brick and mortar retailers are improving online operations to compete with Amazon.
is buying the cinema and entertainment assets of
to include it in a new broadcast service with exclusive content that could test Netflix's hegemony. Companies can benefit from the purchase of Red Hat by IBM if it can challenge Microsoft and Amazon in the cloud space by integrating countless data systems.
Not surprisingly, investors are struggling to price technology stocks adequately in the midst of this evolving regulatory and competitive landscape, while taking into account the US's strongest growth and rising interest rates. interest. Big Tech was one of the few industries that prospered during the economic malaise under Barack Obama and, therefore, naturally attracted more investors.
Technological stocks also received a boost from the monetary efforts of the Federal Reserve that kept the federal funds rate at almost zero for years and abolished long-term rates with quantitative easing. Investors thirsty for higher yields accumulate in riskier assets, and some are now retreating as the Federal Reserve unrolls its balance sheet and raises rates.
This return to realism is unfortunate for some investors, but it should not undermine the economy in general. The S & P is still up 21% from January 2017. It is not bad news if investors direct more capital to other productive companies that can boost US growth.
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