The Zhitong Finance App learned that recently the US stock technology sector has continued to be sold off, and artificial intelligence (AI) related stocks are under particular pressure. However, Matt Orton, chief market strategist at Raymond James Investment Management, believes that this round of adjustments is more like a process for investors to re-examine technology stock valuations and growth expectations, rather than a sign that the market is about to completely collapse. Despite short-term pressure on technology stocks, industry fundamentals are still strong, and a pullback in stock prices may create buying opportunities for investors.
In an interview, Orton said that the current decline in technology stocks is indeed painful for investors, but the problem is more that previous market expectations were too high and capital holdings were too concentrated, rather than a fundamental change in the company's long-term growth prospects.
Using Google's parent company Alphabet (GOOGL.US, GOOG.US) as an example, he pointed out that although the company's cloud computing business continues to grow, the latest financial report still falls short of investors' high expectations, putting pressure on stock prices. As tech giants continue to expand AI infrastructure construction and meet the growing demand for computing power, the market is currently re-evaluating the impact of these expenses on corporate profits and cash flow.
“Our investment strategy this year has always been to avoid chasing highs, but to look for opportunities when the market falls,” Orton said.
Orton's attitude is relatively optimistic about the worsening free cash flow of tech giants, which the market has recently paid close attention to. He pointed out that Amazon (AMZN.US)'s free cash flow over the past 12 months has fallen to negative 42 billion US dollars, but he believes that the negative free cash flow of such companies due to large-scale investments is probably only a temporary phenomenon. “Overall, I can accept the temporary negative free cash flow from these companies as this is just a transition phase.”
Orton specifically mentioned Microsoft (MSFT.US), arguing that the company excelled in controlling expenses and maintaining cash flow. Microsoft maintains financial discipline through measures such as adjusting the size of employees, and is not expected to fall into a situation where free cash flow is negative like some of its peers.
At the same time, Orton believes that another major problem facing technology stocks today is that investors' demand for performance is so high that it is almost difficult to meet. He pointed out that among the AI technology companies that announced results that exceeded expectations, only about 25% of the companies' stock prices rose after the earnings report was released, while the stock price of about 25% of the companies fell by more than 5%. This means that even if a company delivers financial reports that are better than market expectations, it may not be approved by investors.
The semiconductor industry is also facing this situation. Orton said that some chip companies have not only released strong financial reports, and their performance has exceeded analysts' expectations, but the visibility of order demand has been extended to 2029 or even 2030, but stock prices are still falling.
In his view, this further shows that the current adjustments in technology stocks are not entirely caused by deteriorating fundamentals, but rather that the market is absorbing previous excessive growth expectations and valuation levels.
Notably, despite the pressure on technology stocks, Orton is encouraged by the trend that the upward momentum of US stocks is gradually spreading to other industries. He pointed out that the healthcare sector has performed strongly recently, and the financial reports of pharmaceutical companies such as LLY.US (LLY.US) show good growth momentum. Furthermore, consumer-related industries such as cruise ships have also sent positive signals, indicating that there are still investment opportunities other than technology stocks in the market.
However, Orton doesn't think all traditional defensive sectors are worth buying. He pointed out that although industries such as consumer goods and utilities are generally regarded as safe haven options during times of market turbulence, they are currently not attractive enough due to slow growth.
He stressed that although the improved performance of other industries will help expand the basis for the rise in US stocks, large technology companies are still an important force driving the overall market to continue to rise. “At the end of the day, these market leaders and technology stocks still need to play a role in order to push the market higher.”