Tech stocks are in the toilet, and that spells opportunity

A screen in Hana Bank's trading room in central Seoul shows stock prices. [NEWS1]

The value of tech companies is declining and analysts warn their stocks could keep tanking.

The combined market capitalization of the five big tech companies in the United States — Apple, Microsoft, Alphabet, Amazon, and Meta — has declined more than $2 trillion this year.

The market is showing signs of recovery, but they are still tentative.

To help its stock, Uber announced that it would cut spending on marketing, incentives, and hiring, while Robinhood decided to cut 9 percent of its full-time workforce.

Korean technology stocks are performing poorly this year. After soaring more than 20 percent last year, the price of Naver shares fell 26.7 percent from Dec. 5, 2021 to June 3, while that of messaging app operator Kakao declined 29.2 percent in the same period.

Game company shares are depressed. During the same period, NCsoft’s share price fell 36.9 percent and Netmarble’s fell 30.6 percent. Shares of Krafton fell by 46.5 percent and Kakao Games fell by 31.4 percent.

Factors such as inflation, the Chinese Covid lockdowns, and supply chain instability due to the war between Russia and Ukraine overlapped. In addition, concerns about interest rate hikes by the U.S. Federal Reserve and stagflation — a recession amid rising inflation — directly impacted the value of tech stocks.

From May 26 to May 30, the JoongAng Ilbo conducted a survey of people familiar with the tech industry to discuss the "bubble theory" about irrational rises in the price of tech shares.

A total of nine people responded from Mashup Angels, Future Play, Naver D2SF, SparkLab, Capstone Partners, Murex Partners and D-Camp, and TBT Venture Partner and Kookmin University.

“Investors are reducing their investments due to fear and anxiety,” said Kim Do-hyun, professor of business administration at Kookmin University. “Some startups may soon halt business operations.”

On the other hand, some younger tech companies are still unaffected by the jitters — but may soon feel them.

“Some startups are somewhat overvalued,” said Lee Taek-kyung, CEO of Mashup Angels, a startup network. “There are concerns the corporate value of some unlisted unicorns is higher than that of some listed companies."

Many respondents said that they will not reduce their own investments — and may increase them. Some see it as an opportunity to purchase shares of tech firms.

“In the long run, the value of tech companies will increase, and a temporary price drop is an investment opportunity,” said Kim Young-deok, CEO of D-Camp, a startup foundation.

“I know from past experience that investing in a company that can survive a recession of one or two years will yield better results later,” said Song Eun-Kang, CEO of Capstone Partners, a venture capital firm based in Seoul.

But they are being careful about choosing companies to invest in.

“We will invest in sustainable growth rather than pushing ahead with the strategy of 'growth first,'” said Lee Beom-seok, CEO of Murex Partners, a venture capital firm.

Tech stocks are predicted to fall further, and experts do not foresee a new bubble forming soon.

“Companies’ sales and profits are considerable, so the bubble isn’t very big now,” added Kim from D-Camp.

Experts advise focusing on the main businesses of the companies and their customers.

“Companies with unclear core competencies and market values that are too overvalued can be greatly affected,” said Ryu Joong-hee, CEO of Future Play.

BY KIM IN-KYONG [lim.jeongwon@joongang.co.kr]