Tech companies on financial markets are currently experiencing huge volatilities. After the publication of the annual reports, the stock value of Meta dropped with a staggering 25%, while the stock value of Amazon rapidly increased. What is the cause of this volatility? Are we experiencing a tech bubble? These questions and more are answered by Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics, in an interview conducted by NPO Radio 1 (7 February 2022).
Investing in tech is not, as previously thought, always the right thing to do. When people talk about big tech, they often mean the five biggest tech companies: Meta, Amazon, Apple, Netflix, and Alphabet. These companies have experienced a tremendous growth over the past ten years, which have allowed them to make up a quarter of the United States’ stock market. During the COVID-pandemic, the growth of these businesses accelerated since the online world became more important.
According to Pieterse-Bloem, the driving force behind the vast growth of the tech companies has been the low interest rate. However, the current rising level of inflation has led to a rise in the expected interest rate. This higher expected interest rate has a negative effect on stocks that are sensitive to future growth expectations, such as stocks in tech companies.
The question is not whether tech will survive, but which tech companies will remain among the winners, according to professor Pieterse-Bloem. Two elements are important in this matter: staying ahead of the trend and diversification of the business model. Pieterse-Bloem concludes the interview with some advice for private investors. They should diverse their portfolios as much as possible, since it is very hard to predict which company remains on top.
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You can listen to the broadcast by NPO Radio 1, 7 February 2022, here.
