From Twitter to Palantir, Losses in Technology Stocks Stack Up

(Bloomberg) -- The heavy selling in some of the most expensive corners of the U.S. stock market is starting to pile up.

It was a dismal week for companies with some of the highest stock prices relative to growth expectations, even after a rally on Friday, courtesy of a jobs report that was seen as offsetting concerns about higher interest rates.

A Goldman Sachs basket of such software stocks tumbled 10%, its worst week in more than two months. Despite a strong earnings season particularly for tech, the group had fallen for six-consecutive trading days prior to Friday’s bounce, and now sits at the lowest since November.

The losses weren’t limited to the shares of companies with disappointing earnings like financial software maker Appian Corp., which ended the week 27% lower after its revenue forecast trailed expectations. Zoom Video Communications Inc. rival RingCentral Inc. sank 19% even after an earnings report that Wall Street analysts broadly praised. Palantir Technologies Inc., the data mining company due to report results next week, tumbled 14%.

“There’s something of a speculative unwind that’s happening in the tech space that is kind of independent of anything going on in the real economy,” said Willie Delwiche, an investment strategist at All Star Charts.

Fast-growing technology stocks have been under pressure for weeks amid rising Treasury yields and a rotation into less expensive sectors that are seen as benefiting from a re-opened economy.

An exchange-traded fund that tracks North American software companies has fallen 11% from its February peak. The S&P 500 Index has gained nearly 7% over that period, led by energy, financials and materials stocks.

Not even dip buying from Cathie Wood’s Ark Investment Management LLC was enough to reverse the damage to some stocks. The famed money manager seized upon recent selling in Twitter Inc., Skillz Inc. and Palantir to buy shares.

Tech names are “really vulnerable because they had become so pricey last year,” said Scott Knapp, chief market strategist at CUNA Mutual Group. “You’re seeing a rotation taking place, and the extremes from which growth and value are correcting is pretty extreme.”

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Take Twitter, for example. The shares have lost more than 30% of their value since a March peak, with much of the decline coming after a disappointing revenue forecast. The stock has now fallen on nine of the last 10 trading sessions. Twitter shares closed down 0.04% at $53.79 on Friday with a valuation of 11 times sales.

In an environment where there is less of a focus on growth, “the companies that can’t put up the numbers are really getting hit,” said Don Calcagni, chief investment officer at Mercer Advisors, which has about $28.5 billion in assets under management. Twitter’s valuation “needs to come down quite significantly for it to be justified, because it remains pretty substantial, especially in an environment where earnings matter more.”

Buy The Dip?

The selling hasn’t been indiscriminate. The biggest U.S. technology companies, all of which beat earnings and revenue estimates last week, have been relatively unscathed. Microsoft Corp. eked out a gain this week. Google-parent Alphabet Inc., which announced a $50 billion share repurchase authorization last week, fell 0.1%. Apple Inc., which pledged $90 billion for buybacks last week, fell 1%.

For some analysts, the combination of generally strong financial results and post-selloff prices provide an opportunity to buy the some of these shares back, particularly companies whose revenue growth is poised to surpass the broader market in coming years.

“While big tech may take it on the chin while the economy re-opens, if I was a long-term investor that’s still a place I would want to be,” said Ross Mayfield, investment strategy analyst at Robert W. Baird & Co.

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