Wow! Did you see that?
Tech stocks have just undergone one of the biggest reversals I’ve seen in my investing career.
Amazon (NASDAQ:AMZN) the stock fell 8% yesterday, rebounding only 15% after the bell. Unity Software (NYSE:U) dropped 9% before falling 14% after hours. Pinterest (NYSE:PIN) decreased by 10% – then increased by 20% after hours.
And if you think those moves are crazy, Snap (NYSE:SNAP) fell nearly 25% yesterday, before rising 60% after the market closed. That’s almost a 90-percentage-point swing at a $ 40 billion company-on the same day!
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What is going on in the world?
Well, in other words, the tech selloff has reached surrender. And now it’s time to buy a dip.
More specifically, tech stocks were caught in this tug-of-war between valuation compression and strong earnings growth-and the earnings finally won.
In fact, tech stocks crashed at the beginning of the year on fears that the Federal Reserve would tighten monetary policy quickly and aggressively in 2022 – an action heavy on the valuations wealthy supporting tech stocks.
However, tech stocks began to rebound in late January afterwards Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG), Service Today (NYSE:NOW), Atlassian (NASDAQ:TEAM) and more reported good earnings. This reinforces the idea that tech stocks deserve their appreciation premiums because companies grow fast.
But that rebound has been short-circuited by disappointing numbers from Meta (NASDAQ:FB) on Wednesday afternoon. The social-media-turned-metaverse giant reported poor user growth and poor revenue and delivered scary guidance. And that called for a dramatic slowdown in revenue growth.
The market is scared. After all, Meta is (is) an $ 800 billion technology giant. If that company is having a hard time growing, then most other tech companies should be having a hard time as well, right?
As it turns out, Meta’s struggles are inherent in Meta.
Staying Power of Tech Stocks
Twenty-four hours after Meta reported disastrous user growth, poor ad revenue numbers and ugly revenue margins, the company’s biggest social media competitors-Snap and Pinterest-both reported revenues which includes strong user growth, revenue growth and revenue margins.
Also after the bell yesterday, Amazon reported excellent quarterly numbers on the pace of very strong growth in its Amazon Web Services division. Unity Software also broke down the estimates; ganoon din Fortinet (NASDAQ:FTNT), Synaptics (NASDAQ:SYNA), Enova (NYSE:ENVA), Mimecast (NASDAQ:MIME), Bill.com (NYSE:BIL)-and almost every other tech company that reported earnings last night.
In other words, the verdict is in: Tech companies are still on fire!
Now, investors are looking at these very strong earnings reports, comparing them to very low stock prices across the tech sector and seeing huge buying opportunities.
We agree with this thinking. Tech stocks deserve their premium valuations because they are the best companies in the world. The revenue period proved that. Now, with tech stocks lower, the coast is clearly buying a dip.
Here’s the thing. When stocks rebound from a steep selloff, they are likely to do so fiercely.
Just look at yesterday’s moves after hours on some of these tech stocks – Unity rose 14%, Pinterest rose 20%, rose 60%.
And that means tech stocks won’t stay this cheap for long. They are rising now. Your purchase window is closing!
So just, yesterday, we issued five new Purchase Alerts in our core investment research product, Investors in Innovation. We believe now is the time to start bottom-fishing for truly great opportunities in the tech sector. And these five we bought yesterday may be among the best tech stocks on the market that can be bought today.
To find out which one we buy in this dip, click here.
At the date of publication, Luke Lango does not (whether directly or indirectly) any positions in the securities mentioned in this article.