Technology bulls retreated Wednesday as worries about valuations and European regulator escalated. The Nasdaq 100 closed at 15,371, a loss of 0.9%. The decline for the benchmark was the second big loss in three sessions, states Jon Markman, editor of Strategic Advantage.
Many bears are claiming the end of the 2023 rally is in the rear-view mirror. Not so fast. While it is true that shares of some of the biggest technology issues have run up immensely this year, gains have been accompanied by solid growth.
Nvidia (NVDA) shares are up 222% year-to-date, however, sales have risen $3 billion above the Wall Street consensus view, according to FactSet. At $470 shares now trade at only 28.2 times forward earnings, a relative bargain for a business growing so quickly. Some consolidation of those gains is healthy, not a sign that the end is near.
The stock was down Wednesday by 3.1%. The losses extended to the rest of big tech as regulators in Europe designated six firms as gatekeepers. Apple (AAPL), Amazon.com (AMZN), Meta Platforms (META), Microsoft (MSFT), Alphabet (GOOGL), and ByteDance, the parent company to TikTok, are now subject to special rules supposedly designed to rein in their power over the digital economy.
The companies will get six months to comply with regulations or face hefty fines that could amount to 10% of global sales. The headline is negative, however, European regulators have a larger problem. These firms are dominant because people want to use their services, not because they are hurting consumers.
Regulation will only limit services available to Europeans and reduce costs for big tech. Past draconian European efforts, like the Digital Markets Act of 2022, resulted in increased market share in internet searches for Alphabet.
The Nasdaq is having a normal pullback to the breakout level at 15,273, its rising 50-day moving average. Bulls should buy that decline.
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