Technology stocks

Why tech stocks crashed today

What happened

The stock market is in a sharp decline on Thursday, and tech and growth stocks are among the hardest hit. Investors are worried about rising interest rates, a slowing economy and the fallout from the Federal Reserve’s withdrawal from its asset purchases, known as quantitative easing.

Three of the hardest hit were Focus on video communications (ZM -4.42%), DocuSign (DOCU -7.86%)and Okta (OKTA -7.84%), all of which are major enterprise software-as-a-service (SaaS) stocks, fell dramatically in today’s trading. Zoom fell 8.9%, Docusign fell 10.6% and Okta fell 8.8% to its low. These stocks ended the day down 7.5%, 8.6% and 7.8% respectively. While this may be hard to digest, it’s starting to look like a buying opportunity for companies like this.

Image source: Getty Images.

So what

Yesterday Federal Reserve Chairman Jerome Powell said the Federal Reserve was not considering rate hikes more than 50 basis points this year after raising rates by exactly that amount to 0.75% at 1% for short-term treasury bills.

Interest rates on everything from mortgages to corporate bonds have risen accordingly and, combined with a negative gross domestic product in the first quarter of 2022, there are fears that the United States is heading for a difficult economic year. .

Investors often sell riskier assets, such as growth and technology stocks, in this type of environment and that is what is happening here.

Now what

What is important to understand about the current market is that everything is down and that means the good stocks are being thrown away with the bad ones. Zoom, DocuSign, and Okta are specifically essential business tools that have high gross margins and positive free cash flow. This is a good position for investors in a downturn, as these companies will be among the strongest in the market.

ZM Revenue Chart (Quarterly)

ZM Revenue Data (Quarterly) by YCharts

While trading is relatively strong, it’s unclear when these stocks, or the market as a whole, will bottom out. Investors have known about news like rising interest rates and inflation for months, but seem to be selling both the rumor and the news.

As difficult as it may seem right now, I think these are great buying opportunities for long-term sustainable businesses. Zoom is a go-to name in video calling, DocuSign is an essential tool for businesses around the world, and Okta is a big name in digital security. I think long-term investors should see falling prices as an opportunity to get big companies at prices below what those stocks have seen in years.

That said, it may not be the bottom for stocks. If the US economy is indeed in recession and interest rates rise, it could be a long year for investors.