• News
    • Stocks
    • Banks and Finance
    • Companies
    • Crypto
    • Forex
  • Videos
  • Articles
    • Forex CRM
    • Crypto Payments
    • Trading
    • Crypto Exchange Business
    • Forex Business
    • Fintech
    • Liquidity
    • FinTech Awards
  • Liquidity Providers List
  • Crypto Payment Providers

Dark Theme

Know Before You Buy: Understand the Risk of High Tech Stock Prices.

Mar 28, 2023

Know Before You Buy: Understand the Risk of High Tech Stock Prices.

After a disastrous 2022, technology stocks have skyrocketed, making them exceedingly pricey. The moment for prudence has arrived.

The technology-heavy Nasdaq Composite index has risen almost 13% this year, compared to the S&P 500's gain of less than 4%. The main reason is concern about banks rather than spectacular results from tech companies.

Fears that more banks could collapse and that acquiring credit would become more difficult are causing investors to be concerned about economic growth and limiting broader stock market gains. A weaker economy means less inflation, allowing the Federal Reserve to pull back on interest rate hikes, lowering long-term bond rates, and increasing the value of future earnings.

This is important for the technology sector because investors buy growth stocks primarily for the profits companies project to deliver in a few years. Lower interest rates increase the present discounted value of such returns, suggesting that investors may be willing to pay more.

At the same time, the relatively rapid expansion of technology businesses makes profits less susceptible to fluctuations in demand in the larger economy.

Moreover, the most obvious reason is that these stocks seem quite expensive right now. According to FactSet, the Nasdaq has a combined future price-to-earnings ratio of about 25.4 times, nearly 44% higher than the S&P 500's 17.6 times. The Nasdaq often trades at a premium, but this is an unusually large divergence in value.

It is near the top of the surge in August 2020, when the Nasdaq traded at a 48% premium to the S&P 500. Over the past decade, the Nasdaq has sometimes traded at a premium of less than 20%.

So, the Nasdaq's so-called PEG ratio, which divides the price/earnings multiple by the pace of earnings growth to account for how quickly profits are expanding, is pretty enticing. With a price/earnings ratio of 25.4 times and aggregate per-share profits predicted to rise at a rate of 17% per year over the next three years, the figure works out to around 1.5 times.

That's rather modest, given that the S&P 500 trades at a PEG ratio of more than twice. At the moment, investors are paying less for the Nasdaq's expected earnings growth than for the S&P 500's expected profit growth.

One counterargument is that Nasdaq's PEG is only as low as it seems if profits growth is as great as Wall Street anticipates. A little more than 20% gain in EPS for 2024 follows a potentially difficult 2023. It would fall to 15% by 2025.

Several IT trends, including e-commerce, digital payments, entertainment streaming, and even cloud services, are still growing at a slower pace.

"These mega tech companies are subject to the law of large numbers," said Doug Peta, chief U.S. investment strategist at BCA Research. "It's difficult to keep growing at a fast rate."

Even if technology stays exceptionally costly, the short term might see a stronger rebound. Banking troubles should continue to weigh on the stock market for some time, especially if evidence mounts that borrowing difficulties are harming the economy.

That would drive more money into tech names. "One thing that helps growth tech stocks' is that the worries for the broader market have emanated from worries in one particular component of the market, the banks," Peta added.

The difficulty is that while purchasing now is a bet that the tech trade will have a bit more juice in the near term, the sector appears a lot less appealing than it did a few months ago. It is significantly more prone to underperformance.

Subscribe Our Newsletter

Bitcoin Is Back Over $50,000. Cryptos Continue to Climb a Wall of Worry
Bitcoin Is Back Over $50,000. Cryptos Continue to Climb a Wall of Worry

Despite rising market and regulatory concerns, Bitcoin and other cryptos are on the rise. For the first time in a month, Bitcoin has risen beyond $50,000, gaining 4%.

Crypto
Tech Is Still Getting Crushed. Here Are 15 Stocks to Buy in a Changed World
Tech Is Still Getting Crushed. Here Are 15 Stocks to Buy in a Changed World

While stock prices are significantly lower, they are far from risk-free. As the Federal Reserve stated last week, rate hikes are imminent, most likely in March.

Stocks
Constantine

The Future of Stablecoins and Central Bank Digital Currencies (CBDCs)
In economics, the crypto market is a kind of "gray area," i.e., a classic shadow economy, because crypto unequivocally challenges the state monopoly on money issuance.

discover
Top 5 Most Distinguished White Label Solutions in 2022

Constantine

Top 5 Most Distinguished White Label Solutions in 2022

Any partnership in business is always individual in nature and has its own prerequisites. Someone is trying to find new channels and ways of development, someone comes to integrate with a partner not from a good life.

Crypto Exchange Business

Contact Us

Contact the Liquidity Provider
for any questions and advertising inquiries b2broker

    Please fill out this contact form to get in touch with us

    / 3000

    By clicking “Get in touch” button, you agree to the privacy policy

    Tamta

    Guide to Craiyon: How To Use a New DALL-E Mini

    https://liquidity-provider.com/app/uploads/2023/06/cover-5-800x540.jpg

    Tamta

    Credit Cards vs. Debit Cards

    https://liquidity-provider.com/app/uploads/2023/06/cover-800x540.jpg

    Tamta

    Investing In Private Equity: What Should You Know?

    https://liquidity-provider.com/app/uploads/2023/05/cover-7-800x540.jpg

    Tamta

    What is Data Analytics? Techniques, Tools, Methodology, and More

    https://liquidity-provider.com/app/uploads/2023/05/cover-6-800x540.jpg

    Tamta

    Bitcoin Halving is Coming: What Does it Mean for the Crypto Market?

    https://liquidity-provider.com/app/uploads/2023/05/cover-4-800x540.jpg

    Tamta

    Crypto Token Supply From A to Z

    https://liquidity-provider.com/app/uploads/2023/05/cover-3-800x540.jpg

    Tamta

    What Is ChatGPT, And How Can You Use It?

    https://liquidity-provider.com/app/uploads/2023/05/cover-2-800x540.jpg

    Anton

    Trading on Autopilot: The Rise of Crypto Trading Bots

    https://liquidity-provider.com/app/uploads/2023/05/cover-1-800x540.jpg

    Tamta

    Crypto Investing vs. Crypto Trading: What’s The Difference?

    https://liquidity-provider.com/app/uploads/2023/04/cover-5-800x540.jpg

    Tamta

    Understanding Indexed Universal Life Insurance (IUL)

    https://liquidity-provider.com/app/uploads/2023/04/cover-4-800x540.jpg

    Tamta

    Best Investment Strategies For Beginners

    https://liquidity-provider.com/app/uploads/2023/04/image1-800x540.jpg

    Tamta

    Understanding Perpetual Futures: How Do They Work?

    https://liquidity-provider.com/app/uploads/2023/04/cover-3-800x540.jpg

    Tamta

    What Is A Bitcoin Stock-To-Flow Model? Beginner’s Guide

    https://liquidity-provider.com/app/uploads/2023/04/cover-2-800x540.jpg

    Tamta

    Best Decentralized Crypto Exchanges In 2023

    https://liquidity-provider.com/app/uploads/2023/04/cover-1-800x540.jpg

    Tatma

    Best High-Yield Savings Accounts For March 2023

    https://liquidity-provider.com/app/uploads/2023/04/cover-800x540.jpg

    Tamta

    Crypto Trading For Beginners

    https://liquidity-provider.com/app/uploads/2023/03/cover-8-800x540.jpg

    Tamta

    How To Make Money With Cryptocurrency

    https://liquidity-provider.com/app/uploads/2023/03/cover-7-800x540.jpg

    Tamta

    What Is A Candlestick Chart?

    https://liquidity-provider.com/app/uploads/2023/03/cover-6-800x540.jpg

    Constantine

    White Label Forex Software — Ultimate Guide on How to Choose The Best Industry Solution

    https://liquidity-provider.com/app/uploads/2023/03/cover-3-300x203.jpg

    Tamta

    Forex Trading: A Beginner’s Guide

    https://liquidity-provider.com/app/uploads/2023/03/cover-2-300x203.jpg

    Tamta

    How to Create a Cryptocurrency

    https://liquidity-provider.com/app/uploads/2023/03/cover-1-1-300x203.jpg

    Tamta

    Top Ten Richest People In The World, 2023

    https://liquidity-provider.com/app/uploads/2023/03/cover-4-1-300x203.jpg

    Constantine

    What’s at Stake? Here’s How to Avoid Scam Tokens

    https://liquidity-provider.com/app/uploads/2023/03/cover-5-300x203.jpg

    Constantine

    Investing in Currencies That Are More Valuable Than the American Dollar

    https://liquidity-provider.com/app/uploads/2023/02/cover-2-300x203.jpg
    • News
      • Stocks
      • Banks and Finance
      • Companies
      • Crypto
      • Forex
    • Articles
      • Forex CRM
      • Crypto Payments
      • Trading
      • Crypto Exchange Business
      • Forex Business
      • Fintech
      • Liquidity
      • FinTech Awards
    • More
      • Videos
      • Liquidity Providers List
      • Crypto Payment Providers
    [email protected]

    © 2023 Liquidity Provider. All Rights Reserved

    Privacy Policy Cookie Policy