Close your eyes for a moment and imagine walking into your bathroom and flushing the toilet. Do you hear the sound the toilet makes as the water circles the drain?
That’s the same sucking sound I am hearing as I track tech stocks right now. This selling is getting uglier by the second, the minute, the hour, and the day.
But the reasons the sell-off is getting uglier aren’t the same as when the selling first started, when investors digested balance sheet concerns at neocloud play CoreWeave (CRWV) and then weakening free cash flow levels at hyperscalers at Meta (META), Amazon (AMZN), and Alphabet (GOOGL) as they reported earnings.
Here are three new reasons the activity in tech is alarming.
What fundamentals?
First, the selling is happening aggressively even as we get clear, clear positive news from tech heavyweights.
Apple (AAPL) had an awesome quarter, with double-digit iPhone sales growth. New CEO John Ternus didn’t mention iPhone Duo “Crackgate” once on the earnings call. I loved the positivity.
Palantir (PLTR) blew minds again on its earnings day with a big quarter and a big outlook — again.
The response? Both of these stocks are falling in premarket trading on Tuesday.
Wall Street who?
Second, Wall Street is defending its bullish tech calls. I lost count of how many gushing analyst notes I got on Palantir today. Same goes for Apple. Same goes for all the hyperscalers over the past two weeks.
The market is totally calling B.S. on Wall Street’s tech bullishness, and investors are not out there buying top tech names at considerable valuation discounts compared to a month ago — or historical averages.
Just look at the insanely low valuations Nvidia (NVDA) shares are now trading on. Not cheap enough, says Mr. Market.
S&P 493 starts slipping
Third, at the onset of the selling in tech, the S&P 500 (^GSPC) was hanging tough. The vibe was that the S&P 493 — the index excluding the “Magnificent Seven” Big Tech stocks — was a good place to be, seeing as many companies don’t have free cash flow concerns and are growing steadily.
I think the market has woken up to the reality that all companies today are tied to the AI boom.
So many industrial company stocks rose on hopes of AI-driven productivity gains. If this is going to materialize more slowly than expected as a result of what the hyperscalers are doing — and not doing — then the entire market needs to be re-rated.
I hate to be the bad guy here. As Hyman Roth says in “The Godfather Part II,” “This is the business we have chosen.” Now the volatility has to be ridden out.
Follow Brian Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email him at brian.sozzi@yahoofinance.com.
