To see why a levelling of tech valuations has the capacity to terrify even staunch stock bulls, consider the hyper-speculative software makers at the centre of the recent equity storm.hawkish shift by the Federal ReserveAnd yet even with those losses behind them, the group -- a basket of companies for whom profitability has in many cases yet to materialise -- still trades at 16 times sales. That’s almost three times the multiple of the Nasdaq 100 Index.
Higher interest rates suggest a healthy economy, but they also have a deflating influence on how future profits are valued. That’s a concern for technology companies that need a long time to produce the profits implied by their market prices.might consider valuations tools quaint, the metrics have proved an accurate predictor of which companies were most vulnerable as interest rates started to rise.
“To pretend that every stock is really exciting and is going to be the next Google is kind of absurd,” said Purves, founder of Tallbacken Capital Advisors. “The Fed is going into this new phase, and the whole excitement of exploding risk assets is going to be a little bit more nuanced.” As the selloff began in the speculative corners, hedge-fund managers were forced to unwind their crowded tech bets at a furious pace. Their exposure has since fallen to the lowest level in more than 18 months.has lost almost half its value from its 2021 peak, blamed computer-driven traders for the rout.
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