Tuesday, 8 April 2014

Tech Stocks taking a hammering in the US. A bubble again?

US tech stocks are taking a bit of a hammering from US investors this month.
A 275 billion usd hammering.

About 14 companies have lost about 20% of their stock market values which brings us back to the crashing sound of 2008.

Business Software companies like Workday, Fireye and Splunk have been hit hardest down -30/40%. Biotech is down but Facebook has fallen -22% from its March highs (having spent 19 billion on What's App). Twitter and LinkedIn are down circa -40% from highs and even Google is down -12%. Netflix too are feeling the draught.

Of course, this comes on foot of a flood of tech IPO's which in itself, creates a supply and demand issue (too much supply potential) and indeed, reflects a correction on the initial high levels of capital raised. Temporary? perhaps but these rallies tend to naturally gather momentum and continue to slide as nervous investors get cold feet and exit.

It may affect the Alibaba float with a value of 200 Billion usd which is quite extraordinary. Although there could also be a view that these downward corrections actually bring realism to the market and is better for forthcoming IPO's. In other words, lower valuations are more realistic.

But other issues could be at play too - the Russian/Crimean problem is not helping, growth bringing interest rate rises, and general economic matters. It could also be the first sign of another Internet bubble and crash as I know well from 2000. Hopes then were dashed because of the optimism on future earnings didn't materialise (and nor too, did investors know what they were buying into).

If you want a view, it's that it's a correction on insanely high valuations based on unachievable revenues. And investors who got in for a quick bullish gain are realising that. So they're offloading long term...they'll tend not to come back.

A market correction alright, but nothing temporary about it. Planet Earth.