There are many different schools of thought when it comes to the big tech names known as the ‘Magnificent Seven’ that have dominated markets over the past year.
Value investors will tell you their share prices are far too high and the companies are expensive on just about any metric you care to look at.
Growth managers will point to the supranormal growth these companies can achieve (and have), making their valuations hard to quantify.
Then there is the middle ground, consisting of analysts who think the stocks are great businesses but are likely to be choppy from here.
This, to me, seems to be the three main camps that investors fall into. Take this week’s Nvidia results. Perhaps the poster child for the artificial intelligence (AI) rocket ship, the company produced yet another stellar set of results.
It beat the average consensus forecast for the seventh quarter in a row, yet shares slumped 7% on the day as it failed to top the upper range of forecasts, leading to worries about a slowdown in earnings growth.
Dan Coatsworth, investment analyst at AJ Bell, said: “Investors want more, more and more when it comes to Nvidia. Despite the company’s best efforts to talk up the opportunities once again around AI, it wasn’t enough to prevent a share price sell-off following its latest results.”
Since then, the stock has clawed back some of its initial losses, but for investors, it must surely be a moment to consider the prospects of tech, especially if a company can beat expectations and still fall 7% on the day.
It has been a rough earnings season for the tech giants, as Matteo Anelli wrote at the start of August when the majority of the big players released their results.
This leaves investors with a decision to make. Sell, hold on, or buy more. For those wanting to sell, the argument is clear. Multiples have become too stretched and these stocks are priced for perfection.
Last week Anelli wrote about where to reinvest tech profits should investors wish to move on, while for the truly ‘anti-tech’, Dmitry Solomakhin is shorting some of the biggest names in the sector.
But one fund manager I spoke to this week is unconcerned. While investors should not expect the bull run of the past 18 months to continue unabated, he noted that many of these companies are trading at reasonable (although still high) price-to-earnings multiples when considering next year’s future earnings.
He argued that the behemoth tech stocks have rocketed but are now in a more normal market phase, whereby investors should not expect rampant returns, but will still make money.
Volatility will increase and it may be hard to know when to get in or out, but those holding on should be rewarded with good returns regardless.
Then there are the uber-bullish. Those that may wish to buy more. Here the argument is harder to find in my view. Yes these tech stocks can continue to fly. After all, many people have called the end of the US tech bull run during the past decade and have been consistently wrong.
Topping up or getting in at these slightly lower prices following the recent sell-off may be a touch risky for my blood but there are arguments for it. After all, many of these stocks are down over the past three months, with Nvidia now 16.3% lower than its peak in June.
However you invest, whether to sell, buy, or hold is a conscious decision we all need to make, as it is becoming clear that all investors should have a view on the tech giants that have dominated the market over recent years.