Tech stocks extend losses, valuations dented

Mon Feb 8, 2016 3:45pm EST
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By Sayantani Ghosh and Sweta Singh

(Reuters) - Technology shares with lofty valuations, including those of midcap data analytics company Tableau Software Inc and Internet giant Facebook Inc, extended their losses on Monday following a gutting selloff in the previous session.

Shares of cloud services companies such as Splunk Inc and Inc had also declined sharply on Friday. They fell again on Monday, dragging down the Nasdaq Composite index 2.4 percent to its lowest in nearly 1-1/2 years.

"I think we're in an environment right now of shoot first, ask questions later. That's the mentality of technology investors right now," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

"Any disappointment is being taken out to the woodshed."

These stocks had high valuations before the selloff on Friday, driven by years of hype that spending from enterprise customers was moving to big-data analytics and cloud computing.

"I think that what we see is a crisis in valuation for the highest multiple stocks, where valuations ... had been driven too far for thematic reasons, what investors perceived as the hottest growth areas," Avondale Partners analyst Randle Reece said.

The recent declines in the shares have come as some hedge funds have started to sell out of big exposure to the Internet services, software and retail sectors. Long-short hedge funds had taken notably overweight positions in these sectors late in 2015 as other areas of the market faltered while these stocks kept rallying.

Those industries dramatically underperformed the broader market last week, with losses of 7 to 12 percent; hedge fund exposures have been reduced, but funds have not yet unwound those positions, according to Credit Suisse prime services.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE)  February 8, 2016. REUTERS/Brendan McDermid