Wall Street Says Rout Of Tech Stocks Could Get Far Worse

Near the yearend of 2020, Wall Street began to warn investors of a new market dynamic and warned high-growth tech stocks would fall out of favor with investors and projected that overlooked value stocks—think energy and consumer staples—would make a comeback, Bernhard Warner reported for Fortune.

Photo Insert: It's dark times in the market for Paypal as it was punished by investors.

So far in 2022, once high-flying tech stocks are taking it on the chin, with the Nasdaq down 14.4% year-to-date, and down 16.4% since hitting an all-time high in mid-November, just before the Omicron wave arrived to batter the developed world.

Even before Omicron, investors were treating a large basket of growth stocks—names like Zoom, PayPal, and the companies you'd find in Cathie Wood's Ark Innovation ETF, all of which soared during the latter half of 2020—as if it were the plague. Once investors got a whiff that top-line growth for these companies was slowing, they started to cash out.

PayPal is one such company that's getting punished by investors. The stock closed on Friday at $103.65, 15% below its 2020 pre-pandemic high. The collapse in PayPal shares has been nothing short of breathtaking.

From its March 2020 low, shares more than tripled over the next 15 months as usage and revenues soared. And then, just as quickly, the shares collapsed, shedding billions in value as growth started flatlining.

Analyst Ben Carson said on Feb. 19, 2022, that the tech-heavy Nasdaq Composite stocks have tumbled from 52-week highs. He said half of the stocks in the index are down 30% or worse, 40% of stocks are down 40% or worse, 35% of stocks are down 50% or worse, 28% of stocks are down 60% or worse.

He notes that it took Microsoft 16 years to return to its 1999 all-time high, and that Intel and Cisco still trade well below those glory days.

"Tech stocks," he writes, "are prone to these boom-bust cycles because innovation always causes bubbles. We simply can’t help ourselves. I’m not saying today’s tech stocks that are getting killed are in for a similar extended winter," he continues. "But growth investors also shouldn’t assume all of these stocks that are down 50-80% are going to be back at new highs in a hurry."

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