Are Nasdaq Stocks Now Reasonably Priced?
Over the past two years, technology companies have enjoyed explosive growth as investors were upbeat about the prospects for the sector at a time when people relied on technology to stay connected while cooped up in their homes.
Internet firms like Zoom Video Communications NASDAQ:ZM were among those to reap substantial gains from the tech boom during the pandemic. Zoom's stock surged to a record
The confidence in Zoom and other internet stocks like Alphabet NASDAQ:GOOGL and Microsoft NASDAQ:MSFT fueled a herd mentality that propelled the tech-heavy Nasdaq Composite index to an all-time high in
But with concerns about high valuations and interest rate hikes that could lower companies' future earnings, the Nasdaq has been on a freefall for about half a year now, retreating from its November peak of over 16,000 points to an over 18-month low of just under 12,000 points on Wednesday.
Nasdaq Composite 1W
Pandemic favorites lose shine
Zoom, the poster child for 2020, is now trading at less than
The drop in Netflix's shares comes as the company reported its first quarterly loss of subscribers in over a decade. It lost 200,000 subscribers in the first quarter, which the company blamed on people sharing accounts, among other factors.
Billionaire investor
Valuation worries
The appeal of tech stocks has dimmed in recent months mainly due to high valuation coupled with missed or slowing sales targets. Apple NASDAQ:AAPL, in
Apple's price-to-earnings (P/E) ratio, a measure of whether it is over- or under-valued, surged to 35.45 at the end of 2020 before retreating to 28 in the first quarter of 2022. This means that investors are paying
The iPhone maker's current PE ratio, however, is still lower than that of its peers, including Netflix, Amazon.com NASDAQ:AMZN, and Tesla NASDAQ:TSLA, whose P/E ratio's are all above 50.
Most overvalued tech stock
Tesla's stock price has jumped 26% over the past year, but down 40% year-to-date. Over a month ago, the carmaker joined a growing list of megacap companies to enact a stock split after its shares blew past
Many analysts say Tesla is the most overvalued tech and automotive stock in the market and even its own CEO
However, some still see the company's current market value as reflective of Tesla's potential to further expand its dominant position in the electric-vehicle market. In 2021, Tesla held a nearly 14% share of the global EV market, beating rivals Volkswagen, BYD (HKG:1211), General Motors NYSE:GM and BMW, among others.
A counter to the recent pessimism
While many financial watchers cast doubt on tech firms' ability to meet sales targets and justify their high valuations, some say the recent tech sell-off is irrational while remaining upbeat about tech's future performance especially in the area of new tech trends like big data and artificial intelligence.