Wall Street loves technology. Thanks to super-fast internet, professional trading firms can buy and sell millions of shares in a fraction of a nanosecond. Big investment companies and individual investors can order stock through their smart phones from anywhere in the world with even the shoddiest connection. When there’s a technological breakthrough, Wall Street quickly adopts it with the hopes of making as much money as possible.
So it’s no wonder that tech stocks are held with such high regards. Companies like Apple ($AAPL), Google ($GOOG), and the like offer exciting, future-forward products that change consumers lives, all while making hundreds of billions a year in the process. These companies enjoyed a recent surge in demand and subsequent explosion in price, even as sectors like retail and casual dining circle the drain. Some investors believe that the biggest of the tech stocks will be worth more than $1 trillion (with a T) in coming months.
In the last couple of trading days, however, the biggest tech stocks actually declined in value. After breaking Wall Street records and pleasing investors, these stocks suddenly, inexplicably lost value and erased some of their hard-earned gains. Though why this happened and what it means for the future of tech investing isn’t 100% certain, we have some semblance of an idea as to what caused it.
They were overvalued to begin with.
Major tech stocks broke new records this year, moving faster and higher than the S&P market average. Amazon ($AMZN) recently became worth more than $1,000 per share. Tesla ($TSLA) became more valuable than some major, longstanding car companies without making a comparable amount of cars. These stocks and others were based on speculated future value rather than what the company is currently worth. Perhaps investors wanted to sell their stock while it was at such highs — or thought it might not go much higher.
A Goldman Sachs study spooked people.
A recent report by financial powerhouse Goldman Sachs was concerned about the current valuations of tech stocks. The report also claimed they showed certain characteristics that tech stocks had before the 2000 dot-com bubble. This and other findings in the report were enough to spook investors to sell their stakes now, which would drive down demand and price.
International tech stocks dropped because domestic tech stocks dropped.
The tech-friendly Nasdaq index dropped by over 1% on Friday, meaning most tech stock also decreased. Many international exchanges were closed by then. When they reopened Monday, they followed suit. After all, if the American tech sector saw a small decline, then investors for international tech stocks also thought they had a reason to worry.
No one really knows.
A slight loss in value during a short period of time is normal in the stock market. Stocks can’t go up forever, regardless of how big they are. We could blame the above problems, though there is likely more than one cause for the dip. Heck, there doesn’t even need to be a specific reason as to why this small loss of value took place — unless, of course, it continues without an end in sight.
Should you invest in tech stocks right now?
If you’re looking to make a long-term investment in the technology industry — especially in heavy hitters like FANG stocks — you could pick these stocks up at a slight discount right now before they (hopefully) go back up. You could also invest directly in the industry with a tech ETF. Just be sure to do your research in the industry before you invest.
If this slight decline in value scares you, wait and see how these companies perform over time. If the sector continues to decline over months, it could be the sign of something larger to come.