tech

In 2022, Big Tech stocks had a rough ride and most of them failed to outperform the markets, let alone close in the green. Here’s what’s driving the sell-off in tech stocks and how analysts view these beaten-down names in 2023.

In 2022, all the FAANG stocks underperformed the S&P 500, and two, Netflix and Meta Platforms lost over 50%. Amazon stock also fell nearly 50%.

Apple was the best performer and with its 28% loss, it at least outperformed the Nasdaq Composite. The tech-heavy index tumbled 33% in the year as investors shunned growth stocks.

Even Tesla tumbled 65% in the year. Despite the rebound towards the end of the year, Tesla was the fifth worst-performing S&P 500 stock with a drawdown of 65%. The stock had its worst-ever year on record, and so did Meta Platforms and PayPal. Both Meta and PayPal were among the top 10 S&P 500 losers.

There are multiple reasons why tech stocks fell in 2022. Investors exited growth names for the relative stability of value stocks as Fed embarked on among its most aggressive tightening cycles.

The valuations of tech names were anyways elevated as they rallied handsomely in the preceding two years.

Big Tech Stocks Crashed in 2022: Here’s Why

The fortunes of tech stocks, almost all of which benefited from the lockdowns, turned upside down as the pandemic-induced growth withered away. All the FAANG names saw a rapid decline in topline growth last year while rising costs took a toll on profits.

Apple lost $846 billion in market cap last year and was the biggest loser in terms of market cap. Amazon was a close second and lost $834 billion in market cap.

However, from its 2021 peak, Amazon has lost over $1 trillion. It became the first company to lose over $1 trillion in market cap. Apple too joined the club on the first trading day of 2023 and its market cap slumped below $2 trillion.

To sum it up, Fed’s rate hikes, slowing growth, valuation reset, and a general pessimism towards tech names were among the reasons Big Tech stocks crashed in 2022. However, the situation is a bit more nuanced.

FAANGs Lost Their Market Dominance in 2022

The FAANGs dominated the markets in their respective industries and had a strong moat. In 2022 however, the aura around Big Tech companies was shattered. Last year, the combined market share of Alphabet and Meta Platforms in the US digital ad market fell below 50% for the first time since 2014.

In the streaming space, Disney’s total subscriber base, which includes Hulu and ESPN+ surpassed Netflix. However, while the streaming industry lost billions of dollars last year as new players chased growth at the cost of profitability, Netflix churned out profits.

Notably, while all the FAANG stocks closed near their 52-week lows, Netflix was an exception and the stock rose almost 80% from its 2022 lows. Evercore ISI is bullish on Netflix stock and has added it to its top ideas for 2023. There is a guide on how beginners can buy Netflix stock.

In the e-commerce space, brick-and-mortar retailers challenged Amazon’s dominance. According to Captify, Walmart overtook Amazon among shoppers searching for online Black Friday discounts last year.

Apple meanwhile remained an exception and iPhone demand was strong last year. iPhone sales grew in the first nine months of 2022 even as the overall smartphone sales contracted in double digits.

Warren Buffett too added Apple shares in the first half of 2022. There is a guide on buying Apple stock.

Regulatory Scrutiny Increased for Big Tech Companies

While US lawmakers have been concerned over the alleged monopoly businesses of some of the tech companies, in 2022, Europe took the lead in penalizing them. Apple allowed downloads of third-party app stores in Europe under pressure from regulators.

Amazon also settled an antitrust case in Europe. The EU had accused Amazon of unfairly pushing its own products on the platform over rival merchants. The company faced charges of using its gigantic size and access to sellers’ data for unfair competitive advantage.

India’s antitrust watchdog also fined Alphabet over the company’s policies. Alpahbet also lost the antitrust case in the European Union but in a reprieve, the European Union’s General Court reduced the fine.

Facebook Also Faces Multiple Headwinds

Meta Platforms also faces several regulatory headwinds globally. The Media bill in the US is another headwind for the company. If the bill gets passed, Facebook would need to pay news publishers for hosting content. The company is meanwhile not willing to do so and has instead threatened to remove news altogether from its platforms.

A similar law was previously passed in Australia also after which Meta Platforms removed news in the country. Later it restored news after the country toned down the strict regulations.

The company’s metaverse business also continues to lose billions of dollars every quarter. Metaverse is a long-term opportunity though and companies like Nvidia also see the metaverse as a key growth driver. We have a list of companies that are a play on metaverse.

What to Expect from Big Tech in 2023?

Wall Street analysts are by and large positive on Big Tech stocks in 2023. Many analysts listed Amazon as a top idea for 2023 after its massive underperformance in the preceding two years.

The tech giant’s underperformance has caught the eye of several analysts as well as fund managers. Famed value investor Bill Miller has disclosed that his hedge fund Miller Value Partners has added more Amazon shares and termed the stock “one of the easiest names in the market.”

He added, “If it takes three years for Amazon to get back to where it was a year ago to make 25% a year, I think that’ll easily beat the market.”

Miller believes that AMZN would report record profits this year. He is also bullish on the company and believes that its cloud business is almost worth the company’s total value.

Loop Capital, Goldman Sachs, and JPMorgan are among the firms which have listed AMZN as a top pick for this year. There is a guide on buying Amazon stock.

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