Reasons why the tech stock crash may be far from over | opinion
Big techFor anyone who watches the stock market for a living, the recent car crash in tech stocks has been mesmerising. There are plenty of reasons to believe it isn’t over.
There are still some serious questions. Amazon is suffering an uncharacteristically severe adjustment after a massive spending binge, while the issues facing Meta as the former Facebook tries to reposition itself as a metaverse company are little short of existential. But in general, Big Tech’s premium to the rest of the market has been largely erased and the companies’ defensive qualities are likely to show through in tougher economic times.
Multiples of revenues were a favourite that growth investors used to chase stocks higher, at least until the turn that set in last November. On this measure, there is ample room for further declines, particularly since markets often overshoot on the way down as well as on the way up. Revenue multiplies are also quickly falling out of favour as investors try to assess the sustainability of companies that were built for growth but are encountering financial shock and potential economic downturn. Both investors and tech executives are starting to turn away from two favourite profit measures that took hold among tech investors as the market boomed — earnings before interest, taxes, depreciation and amortisation; and net earnings that exclude stock compensation costs.