We’re in the midst of what’s being called the “tech wreck.” After running higher and leading the bull market since mid-April, technology stocks have pulled back in September as investors take profits and evaluate the potential for a second wave of Covid-19 as well as the upcoming presidential election.
After rising 75% from a low of 6.860.67 on March 23 to its all-time high of 12,056.44 on September 2, the technology heavy Nasdaq index has declined 10% in recent weeks. That decline was led by many of the biggest technology companies. Apple’s (NASDAQ:APPL) share price has declined nearly 20% in September, while Amazon (NASDAQ:AMZN) has pulled back 16% and Tesla (NASDAQ:TSLA) has fallen 34%.
While the price declines might represent a buying opportunity for some of the biggest and most expensive technology companies, there are many stocks that may have permanently peaked and could be headed for steeper losses in the weeks and months ahead.
According to Bank of America, investors pulled $25.8 billion out of U.S. stocks in the month of September, the third-fastest cash-out rate ever. Technology stocks have seen more than $1 billion in outflows, representing the fastest pace of outflows for the sector since June 2019.
Mohammad Niamat Elahee, Ph.D., a Professor in the Department of International Business at Quinnipiac University, sounded a pessimistic note on U.S. technology stocks, telling InvestorPlace:
“The gap between U.S. based firms and foreign firms has been narrowing over the years. As a result, the U.S. firms do not have the overwhelming edge that they once enjoyed vis-à-vis foreign firms. The future of U.S. tech firms may be bleak.”
Here are 7 tech stocks to sell now:
- Tesla (NASDAQ:TSLA)
- Facebook (NASDAQ:FB)
- Oracle (NYSE:ORCL)
- Intel (NASDAQ:INTC)
- Alibaba (NYSE:BABA)
- Shopify (NYSE:SHOP)
- Netflix (NASDAQ:NFLX)
With investor confidence and market uncertainty mounting, now may be a good time to consider selling.
Tech Stocks To Sell: Tesla (TSLA)
Things feel different with Tesla. After its stock price quadrupled this year (up 458%), the world’s leading electric vehicle maker has been hard hit since its stock split on August 31 and being snubbed for inclusion in the S&P 500 Index.
During September, TSLA stock has fallen as much as 34%, one of the biggest casualties of the tech wreck. There was a brief rally in the company’s stock in the lead up to its “Battery Day” event on September 22. But any hope investors had quickly fizzled after analysts panned the announcements made during Battery Day as inconsequential at best and far fetched at worst. It certainly didn’t help that Tesla founder and Chief Executive Officer Elon Musk took to Twitter right before Battery Day to downplay the event and caution investors against expecting too much.
The other issue Tesla faces is intense and growing competition. While the Silicon Valley-based company remains the global leader in electric vehicles, almost every established automaker, from General Motors (NYSE:GM) to Ford (NYSE:F), has an aggressive electric vehicle strategy underway to catch-up. There are also a number of start-up companies including Nio (NYSE:NIO) and Rivian that are looking to take away market share from Tesla.
Musk and company will have to remain vigilant and nimble to stay on top in the years ahead. All the competition has led some analysts to declare that the company’s best days are behind it and that TSLA stock may have peaked.
Facebook (FB)
Facebook has really become the villain among leading technology companies. And its reputation seems to be taking more knocks as we get closer to the November 3rd presidential election. Roundly criticized for failing to adequately police misinformation on its platform, Facebook has become the poster child for bad tech actors that value advertising dollars over common decency. In the 2016 presidential race, Facebook was used by Russian hackers and other political subversives to spread false, confusing and damaging information to American voters.
The company’s reputation, and that of its founder and Chief Executive Officer Mark Zuckerberg, has never fully recovered. The company was the subject of a large boycott by corporate advertisers this past summer. Efforts by Facebook to clean up its site have largely fallen flat with a jaded and skeptical public. The company’s latest effort, the creation of an “Oversight Board,” has been panned by critics as lacking any real authority.
With the 2020 presidential election looming, FB stock has been reeling, down as much as 18% in September to $255 a share. If volatility persists or worsens in the lead-up to the November election, it’s a safe bet that Facebook’s share price could be one of the hardest hit. And other than trying to rehabilitate its reputation, it’s not clear what’s next for the social network.
Oracle (ORCL)
Has Oracle succeeded in acquiring the U.S. operations of viral video-sharing app TikTok? It’s not really clear. The whole acquisition has gotten messy and confusing, with the companies and governments involved putting out conflicting messages.
Current reports indicate that Oracle will become the cloud provider for Chinese-owned TikTok and handle all of the app’s American user data. A new U.S.-based company called “TikTok Global” will be established, with Oracle holding a 12.5% stake and partner Walmart (NYSE:WMT) owning 7.5%.
However, TikTok parent company ByteDance of China claims that it will own 80% of TikTok Global and that the company will be a subsidiary. Oracle has contradicted these claims and says ByteDance will have “no ownership” of TikTok Global.
Adding to the confusion, politicians in Beijing and Washington alike have made contradictory statements and threats toward one another. China’s government has yet to approve any sale of TikTok. And President Trump says his administration is proceeding with an executive order to ban the TikTok app in the U.S.
Approximately none of this has done anything to help ORCL stock, which is essentially flat year-to-date at just under $60 a share. It may be some time before the whole TikTok saga gets sorted out, and there’s a good chance that the popular video app could continue to be used as a political football by lawmakers in China and the U.S.
Where this ultimately leaves Oracle and its shareholders remains to be seen.
Intel (INTC)
There was a time when Intel was the world’s dominant semiconductor chip manufacturer. Not anymore. The Santa Clara, California-based company has largely ceded the computer chip crown to rivals Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD).
While Intel remains the highest valued semiconductor chip maker based on revenue, it is losing market share rapidly to its competitors. In July, Nvidia’s market capitalization surpassed Intel’s for the first time. When Nvidia announced in September that it was acquiring chip maker Arm Ltd. from SoftBank for $40 billion, Intel’s share price fell 2%. INTC stock fell a steep 20% in July after a weak earnings report and continues to trade at its late July level of just under $50 per share.
The outlook for INTC stock isn’t great. Revenue is forecast as stagnant this year and next as the company struggles to transition from its legacy business and scales up cloud-based products and services. But whether Intel can compete long-term with its hard charging rivals is a question mark hanging over the company.
Many analysts are urging shareholders to give up on the company. A hoped for turnaround has been plagued by a number of manufacturing problems that have delayed the roll out of new chips for the data center and home computing markets.
The manufacturing problems have gotten so bad that Intel has been forced to use expensive third-party manufacturing services to produce its latest chips. For investors still holding shares, now may be the time to sell.
Alibaba (BABA)
Relations between the U.S. and China don’t appear to be getting any better, and that is bad news for Alibaba. The e-commerce giant might be the Amazon of China, but its stock price continues to be roiled by political rhetoric coming from Washington, D.C. and Beijing. And with the Trump administration threatening to ban a growing list of Chinese companies and delist them from American stock exchanges, now is a difficult time to own BABA shares.
The company’s stock price has fallen 10% in September as technology companies have been battered and the battle over TikTok has raged in the media. Apart from politics, there are growing concerns that Alibaba is going to be slowly broken apart and sold off in pieces.
Ant Group, the Alibaba affiliated company, plans to spin-off and list shares on the Hong Kong and Shanghai stock exchanges. Ant, which runs China’s immensely popular Alipay mobile wallet, is hoping to raise $35 billion through an initial public offering (IPO) that could value the company at $250 billion.
The Ant deal has raised questions about Alibaba’s future and whether other parts of the multinational could be spun off. That prospect could mean the eventual break-up of the Chinese tech juggernaut.
Shopify (SHOP)
SHOP stock has come down 15% since September 1. But at $960 a share, the e-commerce company is still expensive. While the share price remains up nearly 200% from its March bottom, concerns remain that Shopify is overvalued and in need of a major correction.
To be sure, the company has done a good job of capitalizing on the closure of brick-and-mortar retailers during the pandemic and helping companies open online stores, which is Shopify’s bread and butter. The company’s revenue rose 97% in this year’s second quarter.
The question is whether Shopify can maintain its current momentum once a vaccine against Covid-19 is available and stores reopen their physical locations? The company has acknowledged difficulty in recent months when it comes to converting customers from an initial free trial to paid monthly subscriptions for its services.
Other concerns include that large numbers of businesses that tried to stay afloat with the help of a Shopify online store could fail, a scenario that would cost Shopify a significant amount of its year-to-date gains.
The company also made headlines recently for the wrong reasons after it revealed that two employees had stolen the data of about 200 merchants that use its online platform. The stolen data reportedly included email addresses, customer names, mailing addresses, and the products purchased and used. Shopify has brought in the Federal Bureau of Investigation (FBI) to handle the case.
With growth on the verge of peaking and problems mounting, now might be the time to take profits on SHOP stock.
Netflix (NFLX)
There’s just too much competition when it comes to streaming services now. Disney+, AppleTV, Hulu, Prime Video, the list goes on. Netflix has done well during the pandemic-imposed lock downs, adding 10.1 million new subscribers worldwide in the second quarter.
But the company issued weaker-than-expected guidance, saying it expects to add just 2.5 million paid subscribers in the third quarter and further cautioned that growth could slow in the second half of this year following a high number of sign-ups in the first half of 2020. The company has also begun making some of its content available for free in an effort to attract new viewers and, hopefully, convert them to paying subscribers.
The situation has caused some analysts to fret that Netflix’s streaming dominance might be coming to an end. NFLX stock is down 12% in September to $482.88 a share. Whether the share price will rebound remains to be seen. Another concern is the amount of money the company is spending to secure new content.
Netflix will invest about $17 billion this year in content, according to a forecast by BMO Capital Markets. That’s up from $15.3 billion in 2019. The company’s annual content spending is expected to top $26 billion by 2028, according to BMO’s forecast. Netflix is also opening additional production facilities in Vancouver, Canada.
All that spending raises concerns about the company’s debt, especially if paid subscriptions slow as anticipated.
On the date of publication, Joel Baglole held shares of APPL, TSLA, FB, NVDA and BABA.
