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Big Tech Stocks at Cheapest In Months Fail to Entice Wary Buyers

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(Bloomberg) — In the recent market selloff, the valuations of big technology companies have fallen from the lofty heights. Many traders, though, are betting that the declines may well have further to go, and recent history offers evidence to back them up.

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The price that investors are paying for anticipated earnings from the so-called Magnificent Seven companies hit the lowest level since September this week as the broader S&P 500 (^GSPC) dropped 10% from its recent peak. But these valuations are still far from the lows reached in 2018 and 2022 when the profits of tech giants were under pressure, and there are now more factors clouding the horizon.

“While I acknowledge that valuations look a lot better than they did in December, I don’t think this is the bottom,” said Violeta Todorova, senior research analyst at Leverage Shares. “I have been tempted to buy this dip, but there’s still so much uncertainty out there, and I think things will get worse before they get better.”

The selloff has left a Bloomberg index that tracks the Magnificent Seven — Apple Inc. (AAPL), Microsoft Corp. (MSFT), Nvidia Corp. (NVDA), Alphabet Inc. (GOOGL, GOOG), Amazon.com Inc. (AMZN), Meta Platforms Inc. (META) and Tesla Inc. (TSLA) — at 26 times the profits that Wall Street analysts expect over the next 12 months, according to data compiled by Bloomberg. That leaves plenty of room to fall before reaching levels that marked the lows in 2018 and 2022: around 19 times projected earnings.

 

Despite a rally on Friday, the tech-heavy Nasdaq 100 (^NDX) Stock Index dropped 2.5% on the week and is down 11% from a record high in February. Apple Inc. (AAPL), the index’s biggest component, suffered its biggest weekly decline in more than two years.

This represents a remarkable about-face. Just about a month ago, tech giants like Alphabet Inc. (GOOGL, GOOG) and Amazon.com Inc. (AMZN) were making new highs as investors piled into the stocks on expectations that Trump administration policies would stoke economic growth and bring regulatory relief. Those assumptions are in tatters as Trump and other officials have made it clear that they’re comfortable with stock market losses and short-term economic pain in the pursuit of their long-term ambitions to dramatically restructure the US economy.