This year’s former leaders have suddenly become laggards.
Technology stocks continued to fall on Tuesday as shares of giants including Tesla, Apple, Facebook and Zoom Video dragged on the major averages. The group saw its worst sell-off in more than five months last week.
Market watchers including CNBC’s Jim Cramer are preaching caution, but don’t see the latest hiccup as an end to tech’s long-standing outperformance.
Here’s what seven of them said in the heat of Tuesday’s selling:
Cramer, host of “Mad Money,” harkened back to the days of the dot-com bubble:
“The Nasdaq’s down so much at the opening that it may be just so torrid that some buyers come in to cover their shorts. But, look … I implore the people who are newbies: Do you know what you own? Do you know why you own it? Do you own it just for momentum? If that’s it, sell. Because I remember — I think we all remember — how we felt that we didn’t scream sell enough in 2000. We can’t do that now. These people who are just in there because they think stocks only go up, they are the ones who are going to get hurt and it’s our responsibility to recall history, not to tell them necessarily, ‘Hey, you’ve got to sell,’ but you should’ve sold then and therefore maybe you should’ve sold now.”
Gene Munster, managing partner at Loup Ventures, said companies such as Apple that seize on trends including wearables and 5G in this stay-at-home environment are at an advantage:
“These are undeniable big-picture trends and I think that’s going to be a positive. I think companies like Google and other bets, companies like Amazon in terms of how we’re going to be purchasing things, brick and mortar is an opportunity. … I think this is where investors need to be. I think companies like Facebook, that becomes challenging, companies like Zoom. So, this fraction of the marketplace I think creates an opportunity and I would see this recent pullback ultimately as an opportunity to own some of these bigger names.”
Dan Ives, a software and technology analyst and managing director at Wedbush Securities, made the case for tech stocks’ continued outperformance:
“There’s been massive outperformance, no doubt, and obviously a lot of skeptics throughout the rally, but I view it as if you look in this environment, a lot of these growth stories have been accelerated by two to three years in terms of what we’re seeing today. Now, there’s a digestion process in terms of the valuation, especially in some of the work-from-home names and some of the large-cap tech names. But … I think the Street’s still underestimating where these stories go fundamentally. And I think it’s a re-rating. It’s a paradigm shift in terms of what we’re seeing in tech stocks and, to me, there’s always the fundamental drivers. And it’s really going to be a two-phase recovery … through this Covid environment. Now you have an economic recovery on the other side. So, to me, tech stocks still go higher here despite some of these movements, which I ultimately believe is healthy.”
Reggie Browne, principal at GTS and known by some as the “godfather of ETFs,” said the market was entering a new era:
“You also had some mindset around just the tech sector without that natural buyer into the marketplace. So, I think it’s fundamental here. But, look, I think the work-from-home situation and the drive to technology delivery, I think we’re just in a new investment cycle. I see nothing but blue skies going forward.”
Mike Pyle, global chief investment strategist at BlackRock, said staying invested would likely pay off:
“I would say that there are some really significant sources out there of fundamental uncertainty, of fundamental volatility looking into the fall: obviously, a lot of restarts around schools, the economy more broadly, risks around the coronavirus as that happens, risks around U.S. fiscal policy and the support there, risks around the U.S. election over the coming eight weeks. So, in some ways, we think August was a little bit calmer than the fundamentals would’ve suggested it should be and the volatility we’ve seen come back in over the past week is just a reflector of the fact that this is an uncertain environment as we go into the fall, but investors are going to be rewarded by staying invested through that volatility.”
Jeremy Siegel, the Russell E. Palmer professor of finance at the University of Pennsylvania’s Wharton School, preached caution:
“Tesla’s a great stock. DocuSign, Zoom — these are great stocks. But when they start going up 10, 20, 30% a day with capitalizations in the tens of billions, hundreds of billions of dollars and more, you’ve really got to be careful. It’s very interesting. I went back to 2000. And we often talk about that episode. We reached the top on March 10th and then [the] Nasdaq went down by 14% in four days. Now, we had a 10% intraday in the Nasdaq — and it’s just a little bit above that — and then we rallied back within 1% and then it fell apart. And that’s often what happens.”
Ajay Chopra, general partner at Trinity Ventures, said that while some tech stocks are overheated, their fundamentals are largely still strong:
“What we are now seeing, the next wave, is that software is in fact eating the world in the sense that many of these software companies are moving up the stack. For example, Lemonade, in sort of providing its technology to insurance companies, is an insurance company itself, a technology-based insurance company. Same thing with Robinhood for brokerage, Airbnb for hoteling, one of our companies, Earnin, in the banking area. So, you’re seeing these software companies evolve their business models to capture more and more of the gross margins and profits in each of these sectors. So, it’s a much more sound basis, not to say that some of these stocks haven’t run ahead of them[selves]. I think there’s definitely euphoria in the market. There’s no doubt about it. But they’re based on sound business models, revenue, high gross margins and solid growth as opposed to what was happening in 1999 and 2000.”
