Continuous Disclosure: Are we witnessing another tech wreck?

Technology companies shares took a hammering last week. Photo / AP

Billions of dollars in value was wiped off major technology stocks like Meta (the owner of Facebook), Alphabet (Google), Netflix and Amazon last week as investors punished companies for failing to meet expectations.

But that doesn’t mean we are headed for another tech wreck like what was seen in the early 2000s, says Stake’s Eliot Hastie.

“I think it’s different. There’s a lot of talk about it. You’ve got all these different signals flashing across the market. But is it at the bottom? Is it a crash? I’m not quite sure really, because people are still using the technology to do things. They’re still shopping on Amazon, we’re still watching Netflix, we’re still buying Apple and interacting with Microsoft software.”

Shares in technology companies rose strongly in 2020 and 2021, buoyed by people forced to work from home under the Covid-19 pandemic conditions. Hastie said the Nasdaq 100 which is made up of the biggest technology stocks in the US rose 700 per cent during the pandemic period.

But they have come crashing down this year with that same index down more than 30 per cent year to date and the big companies were hammered last week when they reported their latest set of financials.

Hastie said even before the pandemic-driven run technology stocks have always been perceived as a high-risk investment due to their dependence on betting they will do well in the future.

“You really need them to work and they need to come out with their products when they say they’re going to.”

Hastie said the run-up in share prices during the pandemic was also fuelled by the cheap money available as central banks cut cash rates to record lows but now that is disappearing with inflation running hot and central banks forced to increase rates to curb it.

“We have really seen investors move away from tech due to those high interest rates.”

He said Wall Street valued companies based on a certain model which meant the higher interest rates went the lower the value of the company due to its potential to make earnings grow. If consumers are paying more to service their debt and for other expenses, they’ll have to cut back somewhere, whether that’s on a Netflix subscription on putting on hold their plans to buy the latest Apple iPhone.

“You’re betting on the future of those earnings. So when the value of those earnings is decreasing due to higher rates, you do see people get out of it.”

While investors were still keen on technology stocks, Hastie said it was seeing a transition on Stake’s online trading platform with some switching their money into resources companies and blue chip stocks.

Facebook owner Meta has suffered one of the biggest falls and Hastie said that was due to investors questioning CEO Mark Zuckerberg’s move to focus on its loss-making metaverse unit Reality Labs.

“You had investors last week before the earnings call saying you need to pull it in. You need to cap your spending on Reality Labs because in the last year alone, Meta has lost over half a trillion dollars in market value. It has investors worried that he’s going into these unproven realms.”