The backdrop for tech stocks is outright ugly and likely to stay that way in the near-term, warns one closely followed sector analyst.
"A perfect storm continues to brew for big tech," said Wedbush tech analyst Dan Ives. "This year so far has been a brutal tape for tech investors as valuation compression, risk-off mentality, and a "nowhere to hide" feel has seen many core tech names down 30%-40% from highs with high flyers/high beta names down 60%+. From a high level, it's the most oversold we have seen tech stocks relative to its valuations/growth prospects in over five years with this unmitigated surge of the Street heading for the exits."
Ives explains investors have rotated out of tech amid concerns about the Russian war on Ukraine, fears of rising interest rates (often not good for tech investors) and "chaos" around China's zero COVID policy (see Foxconn plant closure on Monday due to fresh outbreaks in Shenzhen.
Market sentiment has become so fragile, investors are raising their allocation of cash in portfolios, says a new survey from Bank of America.
To Ives' point, some of the declines in household-name tech stocks has been startling to say the very least.
Meta Platforms is down more than 50% from its highs, Microsoft is down 21% and Nvidia is off by 38%.
The Nasdaq Composite entered a bear market on Monday. The major index is down roughly 23% from its most recent high.
Ives says there are few places to hide out in the tech space amid the selling pressure, but not too many.
"With a significantly elevated level of cyber attacks now on the horizon, we believe added growth tailwinds for the cyber security sector and well positioned vendors should be a focus sector for tech investors during this market turmoil. Based on our continued conversations this week with enterprises/CISOs and contacts in the Beltway, US/Europe enterprises, and Israel, there is a growing concern that massive cyber warfare is well underway with sophisticated Russian-based cyber attacks going after data centers, networks, vulnerability points, and other highly sensitive data," Ives added.
Wedbush is bullish on Palo Alto Networks, CrowdStrike and ZScaler among others in the cybersecurity space.