If you're like most S&P 500 investors, just the words "tech stocks" now trigger a gag reflex. But it's that the kind of aversion that might eventually lead to opportunity.
So far this year, investors lost more than $4 trillion on communication-services and information-technology stocks like Apple, Microsoft and Meta Platforms, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's roughly 40% of all the money investors lost on the entire market this year, says Wilshire Associates. And yet, analysts see average upside in the two sectors' stocks of nearly 35%.
"No one cares about tech stocks right now," said Nicholas Colas of DataTrek Research. But is that the exact time you should care?
Boredom With S&P 500 Tech Stocks
The lull in interest in S&P 500 tech stocks is deafening. Most investors have all but thrown in the towel on S&P 500 technology stocks. The number of U.S. searches for the phrase "tech stock" hit its lowest level in three years, Colas says. Interest peaked in January and February of 2021, when the stocks peaked as well.
But reality has hit. Most big mutual funds stopped buying into the technology stock giants. And that's sparked a major sell-off that's destroyed historic amounts of wealth. Apple's stock is down 17% this year, wiping out $533 billion in investors' money. Microsoft is off 20.4%, erasing $523 billion. And Meta is down 49% in 2022 so far, eliminating $458 billion in market value.
"Investors have been badly burned and fear further losses. That more than offsets any hopes for gains just now," Colas said. "Ultimately, however, tech stocks should be long-term winners since technology is the most powerful lever for human ingenuity to affect economic outcomes."
Spotting Analysts' Favorites
Wall Street analysts certainly failed to see the bear market coming. But they're already pinpointing their favorite tech stocks to lead the S&P 500 out of its mess.
Analysts are positive on all three of the sectors' biggest losers this year. They're calling for a 61% rally in Meta's shares in 12 months. And they think Apple will be worth 25% more in 12 months, while Microsoft is seen rallying 32%.
Those are all respectable expected gains. But they're not the largest in these important S&P 500 sectors. Analysts' highest hopes for any stock in the S&P 500 communications services sector is for Dish Network. Shares are down roughly as badly as Meta this year, 44%, to 18.34. Even so, analysts think the satellite TV provider's shares will be worth 158% more in 12 months to 47.29. It's important to note, though, that analysts' bullishness isn't connected to fundamentals. Dish's adjusted profit is seen plunging by a third this year and falling an additional 20% in 2023.
Within the information-technology sector, analysts' favorite is one of the worse tech stocks of the year: PayPal. Shares collapsed more than 60% this year to 73.43. But analysts think it'll be a 118.73 stock in 12 months. If true, that represents an impressive 62% rally from here.
What's Next For Tech Stocks?
Colas points out that the low interest in technology is understandable. Investors are tired of losing money on them.
"Interest is low and should eventually rebound with a turn in the market, but over the near term it can still go lower," he said. Tech investors are fearful of losing 20% or more on technology stocks, when they think the upside is limited for now. But that sentiment will turn, Colas says.
"Tech stocks have their twists and turns because investors alternate between excitement and indifference regarding that fact, and also because not every tech-enabled business model can get past the first few squares on the chessboard. As an investment theme, however, technology remains the most important driver of long-run equity returns.," he said.
Biggest Tech Stock Implosions In The S&P 500
Including information technology and communications services sectors
| Company | Ticker | YTD change | Upside to analysts' target | Sector | Market value lost this year (in billions) |
|---|---|---|---|---|---|
| Apple | -17.2% | 25.1% | Information Technology | -$533.4 | |
| Microsoft | -20.4 | 32.4 | Information Technology | -523.2 | |
| Meta Platforms | -49.2 | 61.3 | Communication Services | -457.8 | |
| Alphabet | -17.6 | 31.7 | Communication Services | -350.0 | |
| NVIDIA | -46.1 | 56.7 | Information Technology | -337.0 | |
| Netflix | -69.0 | 53.1 | Communication Services | -183.8 | |
| PayPal Holdings | -61.1 | 61.7 | Information Technology | -136.5 | |
| Walt Disney | -38.1 | 53.6 | Communication Services | -106.9 | |
| Cisco Systems | -31.5 | 22.7 | Information Technology | -87.6 | |
| Adobe | -31.3 | 20.0 | Information Technology | -87.5 |
