By Wong Kon How
Why have high flyers Tech stocks fallen 70%?
Where are they heading and what is their fair value?
There are 2 key reasons for this crash:
1. Post Covid
2. Inflation with recession fear
First let's discuss their all-time high. When Covid started in the beginning of 2020, lock-down swept through almost the entire world. Shopping, watching movies and having meetings at home became a standard default. Companies directly or indirectly provided such services like Netflix, Amazon, Zoom, SEA etc. skyrocketed.
Post Covid:
Most Tech stocks prices were seriously inflated during Covid, therefore with post covid today, adjustment in its prices to its fair valuation is healthy and 70% lower is not surprising.
Inflation with recession fear:
Though the latest December CPI was an improvement to 6.5%, it is still a long way to derive certainty that inflation is moving towards 2% in a sustained way. A point of reference how a healthy inflation number should look like, before March 2021, CPI was ranging around 2.5%.
Risk lingers with inflation. When inflation remains high, consumers may purchase less risking recession.
What is their fair value?
Try to reference their prices before Covid starts in 2020. Some are trading below currently whereas many have not.
Is 70% lower from it's all time high a benchmark from the rest?
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