Tech shares anticipated to plummet by an additional 10% or beyond
Tech Stocks Face Challenges Amidst Rising Interest Rates and Energy Crisis
A turbulent economic landscape is causing headwinds for tech stocks, with rising interest rates and a strong US dollar taking a toll on the sector. According to recent predictions, the profits of tech companies in the third and fourth quarters are expected to lag behind those of the broad-based S&P 500.
The earnings per share (EPS) of technology companies are forecasted to decrease by 6.6 percent compared to the previous year in the third quarter. This trend is further emphasized by the fact that many Nasdaq companies are warning of price increases due to the strength of the US dollar.
The Bloomberg Dollar Index has reached a new record high since the announcements about the strong dollar's impact on tech companies, adding to the challenges they face. More than two-thirds of respondents in the MLIV Pulse survey expect the profits of technology companies to disappoint the market in 2022.
The sell-off in the technology sector in 2022 is expected to continue, with the Nasdaq 100 potentially dropping by more than 10 percent. The Nasdaq 100 has already lost trillions of dollars in market value so far this year, and is currently down by approximately 34 percent, with a value of around 11,340 points.
However, not all tech stocks are facing the same fate. Tech companies specializing in renewable energy solutions, particularly solar photovoltaic (PV) technology, are expected to particularly benefit from the energy crisis. The crisis, triggered by Russia's invasion of Ukraine, has accelerated investments in solar and wind energy to reduce dependency on Russian gas, especially in Europe.
In Europe, solar installations increased by 47% in 2022, and renewable expansion forecasts were raised by 40%. European firms leading in clean tech like wind turbines, electrolyzers, and low-carbon fuels are also positioned to benefit, although competition from China grows rapidly.
Meanwhile, retail investors believe that a gas and oil crisis will boost the development of sustainable electronics. This belief is shared by 60% of professional investors surveyed. Companies like Alphabet (formerly Google) and streaming services like Netflix may face reduced advertising spending and an exodus of price-sensitive subscribers due to economic weakness and high inflation.
Retailers like online giant Amazon are finding that some of their Covid-19 pandemic responses, such as massive investments in warehouses and workers, are backfiring on them. The sharp increases in interest rates are burdening tech stocks and reducing the value of their future earnings.
Despite these challenges, the rest of the companies in the S&P 500 are expected to increase by 3.2 percent in the third quarter. The 12-month earnings per share of the Nasdaq 100 have fallen by 2.9 percent since June 1, compared to a decrease of 0.8 percent for the S&P 500. A strong US dollar is also burdening profits for various companies, thereby increasing the risk of a recession.
