In the last few months, US ‘Big Tech’ and other growth stocks have had a troubled time. Microsoft down close to 10%, Amazon down around 20%, Meta (Facebook) down 12% (the list does not stop there). In fact, it has been so bad for the sector, one would struggle to find many examples of well performing, established growth companies.
Fundamentally, due to consensus being that the Federal Reserve will reduce asset purchases as well as increase rates in order to suppress inflation, the environment for US growth businesses is not a friendly one. Investors have indicated their fears through the markets.
However, have investors been too quick to come to judgement and instead overcorrected prices? Could now present an opportunity for me as a Foolish investor with a long-term outlook?
Headwinds
As mentioned previously, rate hikes present the most obvious and strongest headwind. The expected reduction in economic activity has caused fear for many investors when it comes to the ability to grow, innovate and earn future profits.
A further considerable headwind for US Big Tech (Amazon, Meta, Microsoft, Google’s parent company Alphabet and Apple) comes in the form of regulation. With a small number of companies being so dominant in their respective areas, it is not farfetched to worry about competition regulation.
The power of these companies due to the data they harvest, and the platforms they provide, results in being the target of unwanted political and regulatory attention. This is something that has been exaggerated recently with all of the Facebook leaks and allegations.
Tailwinds
The big five are established, profitable juggernauts that have not only led our society’s tech revolution but have also found themselves with considerable market power and influence.
This market share is not just a regulatory concern, it is also a huge opportunity. This ability to derive consistent and constant revenues is what underpins the big five as fundamentally sound businesses. Particularly as the world continues to move more and more digital they are impossible to ignore.
With strong business fundamentals, growth potential as well as profitability, they tick most of the boxes on an investor’ list. The question then becomes, are they overvalued or is it time to get in?
I believe that given the past few months of poor performance, coupled with the current market correction, these stocks are trading relatively cheap.
Conclusion
On the whole, it is a question of pricing. It is difficult to attack the underlying economic fundamentals of these companies, and thus it is a game of relative cost. Do you believe that the world has repriced US growth stocks? Or have they just temporarily been affected by an inflation-fighting economic environment. I believe that this is temporary, and the big five will prevail and derive profits and share price growth in the years to come. As a result, I think this is my opportunity to get in while shares are trading cheap… this is the chance I’ve been waiting for.
