Last week was devastating for technology stocks. Netflix (NFLX) plunged -37% after a major hedge fund pulled out. This means the stock has already lost two-thirds of its value in this young year.
Other big players also lost: PayPal (PYPL) -16%, Meta (FB) -12% and Zoom (ZM) -10%. At the end of the week, other previously stable top dogs such as Amazon (AMZN), Apple (AAPL) and Intel (INTC) were also hit after investors were not quite as pleased with the quarterly figures and/or outlook.
Technology Stocks Are Mostly Winners And Have Corrected Strongly
The Nasdaq 100 Index of the 100 largest U.S. tech stocks has already lost more than 20% of its value in this year alone.
Of course, this raises the question for us investors whether the weak phase will soon come to an end and whether we might already be able to go bargain hunting.
After all, the general advantage of technology stocks is that they outperform the broad market over the long term. Incidentally, the outperformance of these stocks goes back almost 100 years. While the overall market rose about +7% per year over this period, technology stocks rose +8.5%.
The difference may seem minimal, but over many years it adds up to a significantly higher gain. If you had invested only $1,000 in the overall market at the beginning of the survey, this would have turned into $670,000 today. With technology stocks, however, $2,640,000!
Are These Bargain Prices?
However, technology stocks are also very volatile. Exaggerations, such as those at the turn of the millennium or at the end of the 1960s, have always been followed by brutal corrections, sometimes over several years.
Since 2013, we have again seen a phase of outperformance by technology stocks, which has increasingly gained pace. In the long run, this pace cannot be sustained. So the recent correction was overdue.
Shares of Netflix, Zoom or Meta (Facebook) are now more than -50% below their all-time highs. Investors should ask themselves: Are these stocks now cheap? Is it worthwhile to enter at the current level or is it likely to go even further down? If so, how much further?