Analysts React To Heavy Selling Pressure In The Tech Sector

Tech stocks led the market lower on Monday, with the Technology Select Sector SPDR Fund XLK trading down 1% on the day. Twilio Inc TWLO shares plunged 9.7%, Roku Inc ROKU shares dropped 4.4% and Snap Inc SNAP shares tumbled 7.1% amid the sell-off.

Fearful Investors

Canaccord Genuity analyst Richard Davis said fears about the macro environment are driving the “risk-off” trade on Monday.

“Recession fears and general concern that government agencies have decided to punish tech companies - see news on Google today,” Davis told Benzinga.

The Wall Street Journal reported on Sunday that Alphabet, Inc. GOOG GOOGL and Facebook, Inc. FB are the subject of two new formal antitrust probes by bipartisan coalitions of state attorneys general.

Twilio Hammered

Several analysts told Benzinga the most likely explanation for the weakness is simply investors taking profits on high-growth stocks and rotating into more value-oriented names.

“I suspect it’s a rotation out of high multiple/high beta into more cyclical stocks,” William Blair analyst Bhavan Suri told Benzinga. He said this rotation is the most likely explanation for weakness in Twilio and other software names.

“Also many companies that reported in the saas / software space had good but not stellar results - so I suspect investors worried about sustainability of growth esp given macro concerns.”

D.A. Davidson analyst Rishi Jaluria told Benzinga that profit taking and rotation can create buying opportunities for long-term investors.

“I would note most of the names getting hit are high multiple names that have had impressive run ups,” Juria said. He said Twilio looks particularly appealing.

“It’s one of my favorite ways to play the trend of ‘software is eating the world’ and the growing empowerment of developers,” he said.

Roku’s Rough Day

Wedbush analyst Michael Pachter said there’s certainly no clear fundamental catalyst for the Roku sell-off.

“[I]t’s a momentum stock and there really is no good explanation for why it’s gone up as much as it has,” Pachter said.

D.A. Davidson analyst Tom Forte said Roku shares are likely just consolidating.

“Seems to me the market is taking a breather. Stock has had a nice run, including very recently,” Forte told Benzinga.

Benzinga’s Take

Without any major fundamental news, traders should consider Monday’s trading action as a potential rebalancing within the tech sector among some of the best-performing stocks and market laggards. Traders will get more clarity in the coming days on whether or not Monday;s trading action will be short-lived or potentially represents a longer-term shift in tech investor sentiment.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Othonas Economopoulos contributed to this report.

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