Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 379

Tech continues to run on rising prices not profits

Much was made of the fall in the prices of well-known tech stocks in September 2020, but they are well ahead this year, outperforming the overall market, and they have recovered ground in October to date. Many have benefited from changes in consumer spending patterns brought about (or accelerated) by the virus lockdowns.

In addition, share prices of tech stocks across the board have benefited from new first-time speculative traders – in Australia and around the world – buying shares simply because stocks have gone up in price.

Performance of tech over 2020

Globally, the big tech stocks are classified in different sectors. For example, Amazon (US) and Alibaba (China) are ‘Consumer Discretionary’ (data to end September 2020).

Also in this sector, it is notable that the big US home renovation/hardware chains Home Depot and Lowe’s have benefited from changing spending patterns during the lockdowns. Likewise with Bunnings (Wesfarmers) in Australia.

Apple and Microsoft are classified in the ‘Tech’ sector:

In this sector, we also see Nvidia (gaming software) and Adobe (office software) benefiting greatly from the lockdowns.

Facebook and Google (Alphabet), Netflix and Tencent (China) are in the old ‘Telco’ sector:

Tesla’s share price was also down 14% in September but is up more than 400% in 2020 to the end of September. The share price jumped on its 5:1 share split in August in anticipation of being included in S&P indexes (when a company is added to an index, every index fund in the world that tracks the index must buy shares in the new company to keep up with the index). But the share price fell back in September when index inclusion did not materialise.

Even though Tesla is profitable (just), it is impossible to value. It is trading on Amazon-like multiples at 1,000 times profits. Amazon’s price/earnings multiple is a relatively ‘conservative’ 115 times earnings!

Snowflake’s chance?

The rise of tech stocks this year has led to a flood of new tech floats to cash in on the boom. The highlight of the US tech IPO boom has been a company called Snowflake (SNOW). It is yet another cloud-based data storage firm. Unusually, its CEO Frank Slootman is not the founder, but a hired gun brought in by investors to ramp up the IPO, fresh from rescuing two other similar outfits in recent years (Data Domain and ServiceNow.) Snowflake’s accounts show 100%+ revenue growth and big losses to match. The bigger the losses, the better for a tech IPO!

The company raised US$3.4 billion at $120 per share, listed on 16 September, more than doubled to $253 on the first day, but since then it has drifted sideways. Snowflake is the first time Warren Buffett’s Berkshire Hathaway has jumped into a tech IPO. Berkshire bought $250 million of shares at the IPO price and is sitting on a 100% gain in a couple of weeks.

Buffett has made some very expensive mistakes in recent years, and all have been big departures from his long-held investment philosophies. The Kraft-Heinz deal (mistakenly assuming US brand loyalty extended to non-US markets); the Occidental–Anadarko oil take-over, right before oil prices crashed (having promised for decades never to invest in commodities companies); and big losses on four US airlines (having promised for decades never to invest in airlines). He also spent the 1990s vowing never to invest in tech IPOs (he was right at the time), but he’s doing it now.

Another tech highlight of the month was video conferencing outfit Zoom. Its share price has zoomed up more than 600% this year.

Australia's tech sector

In Australia, the main speculative ‘tech’ stocks were also down in September in the global mini correction, but all were still ahead for the September quarter and ahead for the year to date. (The exceptions are the two share registries Computershare and Link, which are classified as tech stocks for some reason).

Realestate.com (REA) and Carsales.com are not ‘tech’ stocks. Both have risen with hopes of a recovery in consumer spending.

This is not to suggest that the local tech stars are good investments (most are speculative bets, not investments) but shareholders have still done well this year, especially if they bought them in the coronavirus sell-off.

When will it end?

Hundreds of thousands of mostly young first-time speculative traders opened brokerage accounts since the virus sell-off to buy into the hot tech stocks du jour because most of the sporting events on which they usually gamble have been closed. The mini-correction in tech stocks in September was the first time they experienced prices actually going down. They bought purely because share prices were rising (“Hey, I doubled my money in a month – I’m a genius! Defs”).

The current boom will end the same way as every other speculative frenzy that was driven by the mass hysteria creating momentum from rising prices rather than actual profits.

When will it end? It will end when global confidence in the prospect of endless monetary and fiscal stimulus runs out of steam, but confidence seems to be holding up thus far.

 

Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is for general information purposes only and does not consider the circumstances of any individual.

 

2 Comments
David Klumpp
October 20, 2020

Ashley: interesting article as always! You suggested most of our "tech stars are speculative, and I would agree many are. Altium and Appen are companies that are well managed with a long-term vision, good profits and little or no debt (cash positive), and both with bright prospects. Would you say that a company with these characteristics is "speculative"? If you consider them over-priced then maybe you would say that.

 

Leave a Comment:

RELATED ARTICLES

Buy the dips?

The ASX is full of old, stodgy, low-growth companies

5 big calls for 2024

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.