Big Tech Stocks Are Overheating, Warns Expert, as Investors Pile into the Sector

Strategic Insights -

Tech stocks are back on a tear, posting huge gains last year and continuing to rise this year. However, this overheating of the tech sector is a warning sign for cautious investors, particularly large institutional investors who are pulling retail investors into this risky sector. A basket of 10 Big Tech stocks, including Alphabet Inc., Amazon.com Inc., Apple Inc., Facebook Inc., and Tesla Inc., has seen its value more than double in a year, driven by investor uncertainty about the effectiveness of COVID-19 vaccines against variants of the virus.

Key Takeaways:

  • The Big Tech basket of stocks has seen its value more than double in a year, driven by investor uncertainty about the effectiveness of COVID-19 vaccines.
  • The average price of stocks in the Big Tech basket has risen 22% so far this year, with some stocks trading at record highs.
  • Facebook and Alphabet are running out of room to grow, having saturated most of their global markets in social media and internet search, respectively.
  • Apple and Netflix are confronted with formidable competition, with Apple losing its market leadership in smartphones to Samsung Electronics Co. Ltd. and Huawei Technologies Co. Ltd.
  • Tesla's share price is ridiculously high, with a current P/E ratio of 658, while its revenue growth has slowed significantly in recent years.
  • Microsoft is now a mature company, no longer a growth stock but a stable utility, with revenue growth stalled at 14% per year since 2017.
  • Amazon, which has yet to become a profitable enterprise after 27 years, has seen its revenue growth decline in each of the past four years.
  • Profit growth is following the same disturbing pattern at several Big Tech firms, including Facebook, Alphabet, Shopify, Netflix, and Nvidia.

Statistics:

  • The Big Tech basket of stocks has seen its value more than double in a year.
  • The average price of stocks in the Big Tech basket has risen 22% so far this year.
  • The current P/E ratio for Tesla is 658.
  • Microsoft's revenue growth has stalled at 14% per year since 2017.
  • Amazon's revenue growth has declined in each of the past four years.
  • Facebook's revenue growth has declined in each of the past four years.
  • Alphabet's revenue growth has declined in each of the past four years.
  • Nvidia's revenue growth has declined for three of the past four years.

Sources:

  • David Olive, Toronto-based business columnist for the Star.
  • Twitter: @TheGrtRecession.
  • Article source: Globe and Mail.