‘A confluence of crises’ are ‘colluding’ to take down tech stocks: Analyst

Constellation Research Principal Analyst & Founder Ray Wang joins Yahoo Finance Live to discuss tech stock performance and the outlook for investors.

Video Transcript

- Apple, Microsoft, Alphabet, Meta, Amazon. Some of those big tech names landing in the red today. We want to bring in Ray Wang.

He's a founder of Constellation Research. And Ray, when we take a look at the broad-based selling that we saw in tech today, NASDAQ 100, its worst four days since March 2020. When you're taking a look at the losses of the scale that we've seen in the tech sector in recent days, and really in recent months, what's your big takeaway?

RAY WANG: It's an unwanted cratering that's going on here. This is the growth engine. And we're seeing the rotation into value stocks.

And that's not obviously happening as well. We've got macro forces there. Everything.

We've got a crisis of five crises. It's a confluence of crises that are happening. Inventory, inflation, interest rates, infection, invasion.

They're all colluding to basically come in to take down the market. And we're seeing that along with the interest rate hangover waiting for the Fed. So it's a mess.

But these stocks are doing well. These companies are outperforming the market still. But the PE ratios are down, but the question is really, will the revenues be up? And I think everybody is living in that uncertainty.

- So then for people who are wondering, look, Ray, do I buy the dip in this situation? How should people be really looking at that in terms of the formula they should be approaching this with?

RAY WANG: I think they should be thinking whether they're short-term or long-term for what they're looking at. Dollar-cost averaging here is going to make a lot of sense. But, I mean, there's some great names.

What I'm really looking for are forecasts, right? Which of these companies have made good, strong forecasts. We see that in the enterprise software space.

A company called Variant has done that. They've put out some positive forecasts. We've seen companies that have also gone the other direction saying, hey, we got inflation and hedging like Microsoft. And you've seen them take a hit.

And so the question is, which companies can forecast their growth? They think that they're going to do well in the middle of the recession. And of course, the PE ratios have come down.

In terms of the valuations, have come down, but the PE ratios may have still stayed the same. And so we're waiting to see what happens. But the big overhang is, of course, what's happening with the Fed.

Is the Fed going to go 50 or is the Fed going to go 75 basis points? And then, of course, is that the end or is there more? And there's a lot of concern about that given Friday's inflation numbers.

- And Ray, speaking of companies that have been battered this year, but the fundamentals still look good and the future looks relatively bright. Tesla down 7% today and 46% year-to-date. Are they now looking like a good buy? How do you analyze Tesla in the road ahead?

RAY WANG: Well, Tesla has a lot of things going for it. One of is the fact is they are the only ones that really have production scale ensuring they're getting EVs out the door. They're also global.

And they're really not just an auto company. They're a technology company. The stuff that they can do with data, autonomous driving. The stuff that they're able to do with insurance. It's spawning all new types of businesses.

We're seeing the real slowdown, really, is the fact that China is actually back in lockdown or is going to create more lockdown. But there's a lot of upside given the fact that Tesla is in good position. And they've also just announced a 10% layoff. And actually, we've seen some of that as well in terms of some of their retail operations and some of their senior individuals. They've put some layoffs out there.

But they're in a good shape. And we like the fact that they're going to keep their production numbers up. And really, it's just a question of, is the global recession going to hit them more than anyone else? But the competitors, anywhere from Polestar to Rivian right to Lucid, they have not been able to get their cars out into the production scale that Elon termed as "production hell."

- Ray, when you take a look at the narrative, it certainly has flipped from what we were seeing two years ago when investors were favoring growth at all costs. A name like Tesla, they weren't worried about necessarily the production numbers and the delivery numbers maybe as much as they are today. When you take a look at the fact that the narrative has changed so much, what are some names that you think are best positioned for what investors are favoring today?

RAY WANG: So I think some of the stocks that are going to do really well are the enterprise tech stocks. ServiceNow. Salesforce. Nvidia. Workday.

These are companies that are continuously going to do well because people are still going to have to hire. They're still going to have to manage their accounts. They'll have to do CRM.

Oracle's another one of those that did take a hit today. But most of these stocks are basically what we call more recession-proof and more set. And these are the enterprise cloud stocks as a category. Adobe's another good example.

- And Ray, of course I have to ask you about crypto. A lot of people on social media calling it a Black Monday wipe out. What is your take on this?

It does seem like any sort of bad news really does really tank crypto. And the good news doesn't seem to move the needle as much. What is your take on this space?

RAY WANG: I just came back from Consensus in Austin, Texas. The crypto market did get a crater. This has gone from a crypto winter to crypto ice age to-- I don't know what's going on.

But I think the crypto market is actually more sensitive and been more indicative than the VIX is right now in volatility. And I think that's kind of the challenge. But I think we are probably going to see a floor of probably around $20,000 for Bitcoin.

And then the real question is, whether world interest rates are going to come into play. But the big thing was really the fact Celsius, which is one of those-- well, it was not able to actually return or open up their accounts to their customers. And I think that caused a panic in the market along with what else is going on in the macro conditions.