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Sound Advice: April 27, 2022

The Ups and Downs of Technology Stocks

Over extended periods, some of the strongest returns have been turned in by technology stocks.  But along the way, there have been big upsurges and unnerving plunges.  Last year, the group of technology stocks known as the FAANGs were market darlings.  The group includes Meta Platforms (a.k.a., Facebook), Amazon, Apple, Netflix, and Alphabet (a.k.a., Google).

So far in 2022, they’ve hit the skids.  Here’s the comparison.  In calendar 2021, the FAANGs, led by Alphabet (+65%), climbed 27% on average.  Since January 1st, they’ve dropped 30%.

Other popular pandemic names had even worse fates.  Zoom Communications, often the virtual meeting application of choice, went down 46%, followed by a similar collapse this year.  DocuSign, another favorite, lost 32% in 2021 and then had a further loss of 44% for the year to date.

Although the recent rough going for the markets reflects investors’ fears stemming from the war in Ukraine and unusually high inflation, the inevitable slowdown in growth as companies get bigger certainly has had an important impact.  Amazon, for example, had been growing at 68% a year for the past five years.  Its projected growth rate for the next five years is about half that fast.

Netflix is an even more extreme example.  The annual growth rate for Netflix over the next five years is projected to shrink to 16% from more than 90% a year during the last five years.  The company just reported a loss of 200,000 subscribers and a further substantial reduction of the subscriber base is expected.

Even Apple, one of the Steady Eddies in the group, has been settling down to a more mature pace.  The view ahead is for annual gains of about 10% compared with 22% yearly for the last five years.  After a decade and a half of extraordinary advances, thanks primarily to the iPhone, Apple’s gains are now slowing.  The improvements in each year’s new models have been less dramatic than those of the past and consumers are waiting longer before upgrading.

For the strongest of these companies, the future remains bright, but there will be bumps from time to time and growth slows as they get bigger.

N. Russell Wayne, CFP®


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