ONE of the things that 2022 will be remembered for is how the year began with the great tech sell-off.

       To recap, since the start of 2022, tech stocks such as the famous tech cohort known as Faang – Facebook, Amazon Inc, Apple Inc, Netflix Inc and Google’s Alphabet Inc – have been sold down aggressively.

       The reasons for the sell-off were concerns that interest rates would rise sooner than later and that the United States government would start withdrawing support for the economy by reducing the size or quantity for its securities purchases.

       The prospect of rising interest rates and a slowing economy naturally turned investors bearish on tech stocks, which generally trade on stretched valuations, predicting longer-term earnings growth.

       The tech-heavy Nasdaq had plunged by 20% since last November.

       And right in the middle of the tech selldown, a big debate had emerged among stock market strategists – do you buy the dip?

       Famously, Mark Mobius told CNBC that the steep equity market selloff is a good time to load up on profitable tech stocks such as Faang companies, noting that he was keen on buying Faang because they are strong earners.

       The veteran emerging-markets investor noted that money-making companies that have a good return on capital even as borrowing costs rise are great buys right now.

       What followed next is that some mega-tech companies released phenomenal results, which in turn lifted the sentiment of those stocks.

       Almost US$1 trillion (RM4.18 trillion) has been added to the total value of Faang stocks as the group surged 10% over the past six days, driven by the better-than-expected earnings.

       On Tuesday, Google’s Alphabet posted results that exceeded analysts’ expectations, with its profits rising by 36% to US$20.6bil (RM86bil) and revenue increasing by 32% to US$75.32bil (RM315bil).

       Google’s results came after some other tech giants posted healthy numbers, such as the likes of Microsoft Corp, Apple Inc and Amazon Inc.

       Despite disruptions to its biggest categories such as travel and retail from the global supply chain constraints and the spread of the Omicron variant, Google’s advertising grew by 33% in its fourth quarter results.

       The company also declared a 20-for-1 stock split which enticed investors and its shares jumped as much as 10% on Feb 2, pushing Google towards a US$2 trillion (RM8.36 trillion) valuation.

       However, in the same week, Facebook – now known as Meta Platforms – posted disappointing results in its latest quarter.

       This caused its shares to plunge over 26% on Feb 3, erasing more than US$200bil (RM835bil) from its market capitalisation.

       The social media giant blamed the weaker earnings on Apple’s privacy changes that has made tracking users more difficult and in turn making it harder for brands to target and measure their ads on Facebook and Instagram.

       Meta, which continues to face a selloff of its stock, expects that the ad-tracking changes introduced by Apple would cost the company (Meta) US$10bil (RM41.7bil) this year.

       Increased competition from rivals like TikTok coupled with macroeconomic issues like supply chain disruptions that are impacting advertisers budgets were also challenges faced by the tech giant.

       The single-day wipeout in the market value of Meta had spilled over to the broader tech sector and dragged the Nasdaq lower on Feb 3.

       It is important to note that the Faang grouping share prices’ have slipped since the opening weeks of this year as cheaper segments of the markets became more attractive in light of the anticipation of interest rate hikes.

       Since the beginning of this year, Meta Platforms share price tumbled 29.7% to US$237.76 (RM993.48) on Feb 3.

       Netflix, on the other hand dipped 32.1% year-to-date to US$405.60 (RM1,694.80) on Feb 3, suffering a steep selloff on the back of slowing subscriber growth.

       Amazon share price was also down about 18.5% to US$2,776.91 (RM11,603.32) year-to-date on Feb 3.

       Year-to-date, Apple’s share price dipped 5.01% to US$172.9 (RM722.46) on Feb 3. While, Google’s share price was merely down by 1.67% to US$2,853.01 (RM11,921.30) year-to-date on Feb 3.

       As the tech-spill off spilled over the broader equity market this week, other social media stocks were also hit hard including Twitter, Pinterest and Spotify.

       Speaking to StarBizWeek on the prospects of global tech stocks, Scott Lim, an ex-fund manager who had managed RM2bil previously, expects the technology sector valuation would face a “derating” moving forward in view of the anticipation of interest rate hikes.

       Lim, who is also the founding partner of Omni Capital Partners, says the ballooning in valuations of some of the big tech firms would drop once the market has accepted that their growth has peaked.

       “Now the liquidity will no longer support the high valuations and we will see the derating happen.

       “When analysts rush to downgrade the companies, you will see that derating will accelerate and this will cause huge volatility in the US market,” he says.

       Lim foresees more derating of valuations would take place for tech stocks that do not have a strong business model such as social media and e-commerce platforms where the market is getting saturated and competitive.

       However, he says big tech firms like Google and Apple that have a monopolistic ecosystem business model would fare better, adding that “they won’t be hurt badly” despite the selloff.

       “Firms like Google and Apple will still outperform the likes of Meta and Spotify,” he adds.

       Disagreeing with the majority of market analysts’ ever rising optimism on the tech stocks, Lim believes that tech companies’ growth would not sustain the last few years’ pace and these stocks would not be able to live up to market expectation as “the market has been too bullish” on these stocks.

       However, should tech companies’ revenue and earnings growth be sustained at a high level relative to other stocks, fund manager Danny Wong says the market will give them a higher premium and, in turn, a higher valuation.

       With the US Federal Reserve (Fed) preparing to raise interest rates, he reckons that the derating of the valuation of tech companies is possible as it would affect the discounting model of valuations of the tech firms.

       But Wong believes the tech companies business model may counter that impact.

       “Generally, the market will pay a premium for those high growth tech stocks, provided inflation does not pose a sustained threat and required the Fed to react more than what is reasonbly required.

       Despite that, when their valuation goes beyond acceptable levels, then profit taking will take place,” says Wong, who is the chief executive officer of Areca Capital.