On a damaging day for the U.S. stock market, enterprise-focused stocks got hammered just like everything else. But their prospects during a downturn are better than most, according to analysts contacted by VentureBeat.
At the end of trading Monday, the Nasdaq was down nearly 7 percent for the day, after U.S. debt rating was downgraded to AA+ by Standard & Poor’s at the end of last week.
At the end of trading, many enterprise-focused stocks had dropped sharply, but in most cases not quite as badly as the broader market, including Oracle (-7.94% for the day), Cisco (-6.69%), Microsoft (-4.60%), IBM (-3.39%), and Google (-5.70%). Their performance suggests the business technology sector may be nearly as vulnerable to poor market conditions as the overall market.
Daniel Morgan, portfolio manager with Synovus Securities, said the market is in an “emotional” state at the moment following the downgrade of U.S. debt and last week’s revision in first quarter GDP, and that the drop of key tech stocks might be an overreaction.
“The economic recovery is not as strong as investors had initially thought,” Morgan told VentureBeat. “But when it comes to enterprise stocks, many of these companies have strong overseas growth and some have overall strong financial positions.”
Morgan spotlighted HP, Dell, and Cisco as companies that look like they could stagnate, but said we won’t be able to tell for sure until we see their third quarter performance. But he said Google and Apple, two companies that market both on the enterprise and consumer front, and are both suited to weather a recession better than most.
Andrew Bartels, vice president and principal analyst at Forrester Research, said as long as the economy grows—even slowly—then tech companies should continue to grow at twice the rate of the market itself. Bartels said companies in unsteady times are more likely to invest in technology than in personnel, which means enterprise-focused companies are in a solid position.
“Generally enterprise and tech companies have fared better in downturns,” Bartels said. “Even with slow economic growth, these types of companies will see revenues rise.”
However, Bartels notes there is a 25 to 30 percent chance the U.S. is headed back to a recession. And if the U.S. goes back down that road, we should expect tech companies to fall at the same pace as the market.
“Tech companies in the current environment can expect growth at 10 percent or higher, but if you’re back in a recession, it drops to 6 to 7 percent growth,” Bartels said.
Michael Gartenberg, a research director at Gartner, covers the interconnected consumer market and companies like Apple. He said the ripple effects of the market can affect companies in the short term, even ones with a history of strong sales.
“If we look at Apple’s sales in 2008 to 2009, it held up well even during a recession,” Gartenberg said.
What do you think about the current state of tech stocks?
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