Tech investors have been caught in a whirlpool of slump this year. Since the end of last year, the Nasdaq composite index has fallen about 25%. Many technology stocks have fallen by more than 50%, and few stocks have survived the sell-off. In the face of soaring interest rates and fuel prices and fears of recession, investors first sold the winners during the epidemic, and then other types of technology stocks were also sold off.

On Tuesday, June 28, the Nasdaq closed down 3.1% as technology stocks led the u. S.stock market lower again as investors continued to worry about high inflation and the risk of recession.

Analysts believe that the bottom of technology stocks has not yet been identified and will continue to be under pressure from risks such as macro headwinds and supply chain shortages in the coming quarters. Analysts also pointed out that the pullback in technology stocks will help restore the health of fundamentals and eliminate some noise in the market to some extent, and they are still optimistic about long-term opportunities.

Earnings expectations do not yet reflect the risk of recession

At the recent online technology investment summit held by Barron Weekly, more than a dozen technology industry leaders, analysts and investors shared their views on the technology industry and the economic situation as technology stocks entered the "cold winter". They think,The growing likelihood of a recession will damage the fundamentals of the technology industry.

Katy Huberty, head of equity research for the Americas at Morgan Stanley, who attended the summit, pointed out that the recession is increasingly likely to shrink the profits of many companies, but Wall Street's earnings expectations for most technology companies have barely changed.

Huberty believes that there will be a round of adjustment in technology companies' earnings expectations from the start of the second-quarter earnings season to the rest of the year. She points out that the recessions of 2001 and 2008 both led to a drop of more than 50 per cent in technology companies' revenues.

Henry Ellenbogen, partner and chief investment officer of Durable Capital Partners, a long-time investor in growth stocks, spoke with technology executives that the economy could fall into recession. "when we entered 2022, CEO basically had growth plans, but now these plans have become more conservative because of the weak economy, and even companies that think the economy will continue to grow are worried about increasing investment," Ellenbergen said. "

Ellen Bergen believes that this phenomenon, coupled with a decline in consumer spending, means that the US economy may have fallen into recession or will fall into recession in the second half of the year.

Bindiya Vakil, chief executive of Resilinc, a company that monitors the supply chain through AI, believes that supply chain disruptions will last for another 12 months, maybe even 18 months, as to the supply chain disruptions that plague head companies such as Apple Inc.

"this problem was initially caused by the epidemic, and then the conflict between Russia and Ukraine and the recurrence of the epidemic in some countries aggravated the supply shortage and caused more widespread damage," Wakir said. Although the problem has eased recently, it will take some time for the supply chain to really stabilize. "

No one can survive the recession, which kind of technology stocks are the riskiest?

One of the biggest concerns for technology investors is the extent to which corporate-targeted hardware and software companies will be adversely affected if the economy falls into recession. According to Barron Weekly, the question is not whether these companies can be immune from the recession (because no one is immune from the recession), but how much risk their business and share prices still face.

Early signs of economic weakness have been reflected in consumer-oriented companies such as retailers, as well as those that rely partly on advertising revenue. While some corporate-targeted technology companies have been largely unaffected by the slowdown in corporate IT spending in the most recent quarter, they are less likely to survive the recession.

Evercore ISI analyst Amit Darianani (Amit Daryanani), who has conducted in-depth and extensive research on the impact of the recession on technology companies serving companies, warned in a research report released on Tuesday.Judging from the performance of stocks during the financial crisis of 2008-09, shares of such technology companies are likely to face an average decline of 30% to 40%.

Darianani divides the type of technology stocks he tracks into three categories: "low-risk" stocks that are expected to perform better than the average of their peers; "medium-risk" stocks; "high-risk" stocks fall higher than the average of similar stocks due to high leverage, low income visibility or cyclical above-average.

Darianani believes that in an economic downturn, a small number of "low-risk" technology stocks will fall less than their peers, with less than 20% of the room for decline. "We believe that these technology stocks have higher revenue visibility, more diversified customer / end markets, strong balance sheets, less cyclical risks and / or long-term growth drivers," he wrote in the research paper. It is expected to be immune from macro headwinds. "Darianani pointed out$Check Point Software (CHKP.US) $ 、$Dell Technology (DELL.US) $、$F5 Inc (FFIV.US) $、$International Business Machines Corp (IBM.US) $和$Palo Alto Networks (PANW.US) $It belongs to this kind of technology stock.

Darianani believes that "medium risk" technology stocks could face a decline of 20% to 40%, including$Akmai (AKAM.US) $、$Arnold Electronics (APH.US) $、$Apple Inc (AAPL.US) $、$Arista Networks (ANET.US) $ 、$CDW Corp (CDW.US) $ 、 $Ciena (CIEN.US) $ 、$Cisco Systems (CSCO.US) $、$Cloudflare (NET.US) $、$Fortive (FTV.US) $、$Flying Tower Information (FTNT.US) $、$Huihe Technology (HPE.US) $、$HP (HPQ.US) $、$Juniper Network (JNPR.US) $、$American Network Storage (NTAP.US) $ 、$Resideo Technologies (REZI.US) $、$Vertiv (VRT.US) $和$Vivint Smart Home (VVNT.US) $ 。

Darianani's list of "high-risk" technology stocks could fall by more than 40%, including$CommScope (COMM.US) $ 、$Sensata Technologies (ST.US) $ 和Tyco Electronics (TEL.US) $。

Darianani also lowered the target prices of some of the above-mentioned technology stocks, including Apple Inc, Arista, CDW, CommScope, Cloudflare, Huihe, Juniper, NetApp,$Pure Storage (PSTG.US) $、$Rackspace Technology (RXT.US) $, Resideo, Sensata and Vivint.

While technology stocks will remain under pressure in the coming quarters, analysts remain bullish on long-term investment opportunities.

Ellen Bergen of Durable Capital Partners believes that investors who focus on fundamentals will have an advantage as valuations and earnings expectations reset. "the winners in the next cycle are companies that actually perform well during an economic downturn and show the ability to drive their business while investing in the future," he said. What you learn during an economic downturn is often the basis for the next batch of great companies. "