Technology stocks have recently suffered a heavy blow, but are unlikely to remain in a long-term slump. The Technology sector SPDR ETF (XLK) fell 3.4% this week to $223, significantly down from its peak of $237 in July. Investors have ample reason to avoid what used to be their favorite stocks. While Microsoft (MSFT.O) reported solid financial results, they are not enough to support its valuation of nearly 30 times earnings. Formerly highly-regarded chipmaker AMD saw its stock price plummet nearly 40% within two days after its auditor resigned due to accounting issues, sparking concerns in the market about possible overheating in the artificial intelligence sector. In addition, for the group of stocks that have risen by 40% in the past 12 months, buyers in the market may now be scarce.

However, Amazon (AMZN.O) rose by 5.2% after hours on Thursday, exceeding expectations for its third-quarter profits; Meanwhile, Apple (AAPL.O) dipped slightly by 0.4%, also surpassing market expectations.

The yield on the 10-year U.S. Treasury notes has risen by 0.63 percentage points since the day before the rate cut by the Federal Reserve on September 18th, indicating sustained economic growth. Policies proposed by the two presidential candidates may exacerbate inflation. Rising long-term bond yields have eroded the value of future profits and put pressure on valuations.

Perhaps the pressure is too high. The forward P/E ratio of the current Technology ETF is 28 times, lower than the peak of 31 times in July. If bond yields fall, it may drive valuations higher again. Even if the multiples remain unchanged, earnings can still play a role. According to FactSet's forecast, profits in the technology industry are expected to grow at an annual rate of 18% over the next two years due to 9% sales growth and billions of dollars in share buybacks. In other words, despite recent weakness, the industry itself is not problematic.

"Technology stocks have risen significantly so far this year," wrote Mizuho Securities analyst Jordan Klein, "There's nothing to worry about in moderate selling."

This may also be an opportunity. Despite being part of the Communications Services sector, Meta Platforms (META.O) has not been immune to the weakness in tech stocks. Its revenue increased by 19%, reaching a better-than-expected $40.6 billion, as AI features enhanced user engagement and increased ad impressions—and the amount the company pays for this. With expenses growing slower than revenue, profit margins improved, with profits growing by 37% to $6.03 per share, well above expectations. However, investors were not satisfied, and the stock dropped by 4%. The issue lies in Meta's forecast to further increase expenses by 2025, which may squeeze profit margins when sales growth slows down. In fact, management plans to make significant investments next year to ensure the platform's leading position with users and in the market. But after the spending slows down, profits should accelerate.

This did not satisfy investors, and the stock dropped by 4%. The problem is that Meta expects to further increase expenses by 2025, which may compress profit margins if sales growth slows. In reality, management will make significant investments next year to ensure the platform's leading position with users and in the market. However, after spending slows down, profits are expected to accelerate.

"Meta is in a crucial product cycle, achieving over 20% revenue growth by enhancing engagement through targeted advertising and content recommendation engine," said Evercore ISI analyst Mark Mahaney, who maintains an 'outperform' rating.

Furthermore, Meta's price-earnings ratio is only 23.2 times, lower than its three-year peak of 25 times, and only slightly higher than the S&P 500's 21.8 times, despite its faster growth.

This is one of the technology stocks we would choose to buy at a low point.