For months investors have faced a dilemma — pay through the nose for technology giants trading at eye-watering multiples, or wait for a cheaper entry point and risk missing out on the year’s biggest bull run.
Those that chose to sit on the sidelines got a big opportunity to pounce Monday amid a rout that saw the Nasdaq 100 Index fall as much as 5.5%, extending a three-day slump into the double digits. And while many loaded up on shares of Nvidia Corp. and Apple Inc. at steep discounts to where they traded just days earlier, they were undoubtedly the minority. Most were content to bide their time, unconvinced that the selloff is over.
“I’m waiting for a better opportunity to buy,” said Dan Cook, chief strategy officer with Apex Trader Funding. “I want to see an indication that the pressure has relieved a bit.”
It was a sentiment echoed by numerous investors amid growing fears of a US recession and concerns over heavy spending on artificial intelligence. While most said they were optimistic over the long-run, few said they were diving head long into the selloff.
“Until we get the next positive driver, the path of least resistance could be down,” Cook added.
Where that driver will come from, however, remains unclear. Six of the so-called Magnificent Seven tech companies that have fueled much of this year’s gains have already reported earnings, leaving traders waiting several weeks before AI-darling Nvidia reports on Aug. 28. What’s more, in the wake of last week’s Federal Reserve meeting in which policymakers stood pat, the next gathering won’t be until September.
Results so far have painted a mixed picture of the sector. Alphabet Inc., Amazon.com Inc., and Tesla Inc. all sank in the wake of their reports, which underlined concerns over issues including their growth prospects and spending plans. However, Meta Platforms Inc. and Apple both rose following their results, while overall the group demonstrated positive trends for earnings stability and demand even as profit growth is set to slow in the second half of the year.
So far this season, 80% of companies in the S&P 500 tech index have topped earnings expectations, though fewer than 60% have for revenue, according to data compiled by Bloomberg Intelligence. Last quarter, 90% beat on earnings and 56% did on revenue.
The Nasdaq 100 finished Monday’s session down 3%, well off the 5.5% decline at the start of trading, but still its second-worst day since 2022 (the other coming last month).
While dip buying helped soften the blow, plenty of damage was done. Even after paring a drop that at one point sent Nvidia down 15%, the stock closed down 6.4%, erasing $168 billion in market value amid a report that its upcoming Blackwell chip will be delayed. Its shares have now fallen 26% from their June peak.
Apple tumbled as much as 11% on Monday after Warren Buffett’s Berkshire Hathaway Inc. cut its stake in the iPhone maker by nearly half. The stock closed down 4.8%.
While the selloff has brought valuations down across the board, they’re far from bargain levels. The Nasdaq 100 is priced at 24 times profits projected over the next 12 months, according to data compiled by Bloomberg. While that’s down from 28 times a month ago, it’s still above the benchmark’s 10-year average at nearly 22. Nvidia is priced at 31 times estimated earnings, while Apple and Microsoft Corp. are trading around 29 times.
“Valuations aren’t screamingly cheap, but they are defensible,” said John Belton, portfolio manager at Gabelli Funds. “A lot of big tech are showing really strong growth, margin expansion, above-average earnings growth. They still deserve pretty healthy multiples, especially if we enter a more normalized rate backdrop.”
This earnings season has shown that while Big-Tech earnings remain strong, investors are growing more skeptical about heavy spending on AI computing infrastructure and questioning when those investments will begin paying off.
Despite Monday’s carnage, there were some bright spots. Advanced Micro Devices Inc. rallied to close up 1.8% amid bets that it’s poised to benefit from a potential Nvidia setback. Chip equipment makers including ASML Holding NV and Lam Research Corp. also rose.
“The market could be still very volatile, but you know, those six or seven or eight things that make up this perfect storm, maybe a couple of them go away and investors get back on the playing field,” said Ken Mahoney, chief executive officer of Mahoney Asset Management.
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