Big Tech's bloodbath could be sticky this time
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America's biggest tech companies are getting hammered by investors as the war in Iran spikes oil prices and kills rate cut hopes.
Why it matters: The tech companies that drove the stock market's gains for the last three years are now its biggest headache.
State of play: Tech stocks are down 10% from their highs, and the S&P 500 has had its longest weekly losing streak since 2022.
- As oil prices spiked above $110 a barrel, investors fled risky corners of the market like tech and piled into defensive sectors that typically perform well during economic downturns.
- The tech-heavy Nasdaq 100 index is down more than 8% so far this year.
- The tech selloff comes after valuations hit a near record, meaning these stocks were extremely expensive in light of their earnings potential.
What they're saying: Tech "is not immune to what's going on with this global energy crisis," Kevin Gordon, head of macro research and strategy at Charles Schwab, tells Axios.
- The spike in oil prices increases costs for tech companies, the biggest of which are set to spend over $650 billion this year on energy-hungry data centers and the like to fuel their AI ambitions.
- The market selloff, meanwhile, is hurting their stocks, which could pressure their spending if it lasts.
Between the lines: This selloff is also particularly difficult for investors, Gordon says, in part because it is not deeper.
- Investors have grown accustomed to buying into major selloffs because stocks recover quickly — not this time so far.
- "This is a little bit of a more protracted, longer duration selloff than what investors have become used to," he says. "Ironically, I think that's keeping people from feeling that they can buy the dip."
Threat level: Big Tech firm's are spending at such a record rate to fund their AI ambitions, their capex is a bigger driver of economic growth than consumer spending.
- If tech earnings are hit by the spike in energy prices, their spending could slow, and the entire economy could feel the punch.
What we're watching: If corporate profits are pressured, companies may lay people off.
- That pressure on consumers dings spending, which then hurts earnings for big companies.
The bottom line: More pain could be coming for tech stocks, and therefore, the entire economy.
