Sun 26 Mar 2023 1:53 pm - Jerusalem Time
The banking crisis makes technology stocks a safe haven for investors
After being considered for a long time very risky and expensive, the stocks of technology sector companies have risen since the outbreak of the recent banking crisis to the extent that they are considered a safe haven for investors.
The value of Mita, Alphabet and Microsoft shares have all risen by more than ten percent on Wall Street since the first signs of the storm that swept the US banking sector at the beginning of March, while the Dow Jones index fell by more than 2 percent.
" Investors see these technology companies with large market capitalization as a safe destination at the present time," said Angelo Zino of the CFRA Research office for studies and analysis.
This contrasts with the image that has accompanied the technology sector since the collapse of the "internet bubble" in 2000, as a sector that is often overvalued, with uncertain financial prospects and many unpleasant surprises.
Dan Ives of Wedbush Securities noted in a note that "many have been warning about the technology sector" for months, "but the reality is that the Nasdaq is up about 13% this year," adding that "many investors who were expecting its decline are seeking to understand" this phenomenon.
"A large portion of the largest companies in the world come from the technology sector," said Scott Kessler of Third Bridge, noting that their huge market capitalization partially protects them from surrounding fluctuations.
He added that these companies "have financial flexibility and huge liquidity reserves," which provides them with a strong base in times of market turmoil.
Likewise, the digital world has become entrenched in the lives of individuals, unlike the situation in the year 2000.
"People will not abandon Windows or Amazon Web Services (cloud services) at once, or stop doing research on the Internet," the analyst said, stressing that the services provided by Internet and information giants "are essential and necessary."
To these structural elements are added circumstantial factors that provided an ideal and unexpected situation for the shares of this new economy.
Among the parties who went to these stocks, according to Dan Ives, a large number chose to abandon the financial sector, as "it is not known which bank is facing a crisis and any news that can be received one evening" regarding emergency measures.
The United States is still in a fragile situation due to the collapse of three banks within a few days, which undermined market confidence in the financial system, although the wave of panic was contained.
And those who moved to the technology sector stocks found attractive increases in the value of assets resulting from the sudden correction process that the technology sector witnessed in 2022 as a result of the exit from the Covid-19 epidemic and the entry into a ring of rapid tightening of monetary policy.
On the other hand, Angelo Zeno pointed out that since the end of last year, "investors are getting (from major technology companies) what they are looking forward to, which is savings plans."
Amazon announced this week a batch of new layoffs affecting 9,000 employees, in addition to the layoffs of 18,000 employees in January. A few days earlier, Mita announced more drastic redundancies, taking its staff cut rate to 24%.
Scott Kessler believed that "the general feeling about these big names has changed due to their emphasis on efficient performance" and rationalizing costs, which were criteria that did not seem necessary until then due to their continuous growth.
The last card in favor of technology companies was the US Federal Reserve's slowdown in tightening its monetary policy, which prompted stock exchange clients to expect the central bank to stop the approach of raising interest rates and moving to reduce them in stages until the end of the year.
Such a scenario would be ideal for big technology companies, which, like the entire sector, are counting on credit terms to fund their rapid growth.
"It looks like the interest rate hike is over, removing a huge cloud over the sector," said Dan Ives.
However, Angelo Zeno warned that companies with a medium market value do not enjoy the same prospects, noting that some companies "the most modest will find it more difficult to adapt to the tightening of the conditions for access to loans" as a result of the turmoil in the banking sector, especially since the crisis began with the bankruptcy of a bank. Silicon Valley which counts a lot of tech startups among its clients.
He believed that these companies "will have to be more selective."