What does the market turmoil mean for tech?
Headlines are full of the market turmoil, spreading from China to the rest of Asia and then to the rest of the world. But how will the current wobble affect the technology industry?
Giants like Apple, Intel and Microsoft have already seen their share price fall in the last week, with Apple losing more than $150bn from its stock market value. The last big slide in the tech giant’s share price came in 2013 when Apple shares lost 40 percent of their value.
According to USA Today Apple is “the battleground stock where bulls and bears are squaring off. Bears insist smartphone growth is slowing, price pressures are rising and the important market of China is slowing down. Bulls think new Apple products, including a refreshed smartphone expected to be announced in early September, will reinvigorate growth.”
This might suggest that Apple will be a bellwether stock to watch closely over the coming days and weeks. Apple is one of the most widely held stocks by individual investors. The company also has more than $200 billion in cash and investments, a portion of which has been earmarked for buying back stock.
According to the Financial Times the setback has also exposed a widening gulf between the euphoric valuations for private tech companies and the more sombre public stock market.
Tech investor Bill Gurley of Benchmark has argued that if the valuations of public tech companies are compressing, private market valuations might be next. Gurley took to Twitter to warn the tech industry and start-up unicorns (companies valued at $1bn before their IPO) about the impending crisis.
“We may be nearing the end of a cycle where growth is valued more than profitability. It could be at an inflection point.” Gurley tweeted adding: “bad things are happening quickly” and “can you get to profitability on your last round? Have you even considered such a reality?”
Many US tech companies are dependent on overseas sales, which makes them vulnerable if the dollar strengthens as other currencies fall. However the most vulnerable companies in this climate will be those who’ve been valued on their growth prospects. Chinese companies are in an especially tough situation and the ecommerce giant Alibaba’s share price has fallen 43 percent below its peak to $68.16, just barely above its $68 initial public offering price.
The biggest fear for technology companies and investors is that we might be heading towards another global recession. Unfortunately we might not know it until we’re there. Stocks are up over 200% since March of 2009, Business Insider is already looking at how to cope with a correction. Their message? Keep calm and carry on.
Image by Matthew Wiebe.