190430 Nasdaq
The tech-heavy Nasdaq 100 Index has fallen 28 per cent this year, wiping out about $5.6 trillion of market value. Image Credit: Bloomberg

Investors will remember 2022 as the year when the narrative around Big Tech finally cracked, ending a years-long stretch of powerful market leadership. Next year offers few signs of relief.

Marquee stocks like Amazon.com Inc., Alphabet Inc., Tesla Inc., Nvidia Corp., and Meta Platforms Inc. have lost a third of their value or more this year, and the tech-heavy Nasdaq 100 Index has fallen 28 per cent, wiping out about $5.6 trillion of market value.

Surging inflation and interest rates have eroded the favourable conditions that contributed to tech’s years-long advance, raising the prospect of recession in 2023. While that’s hit the whole stock market, highly valued tech stocks had further to fall.

“For the first time in five to 10 years, big tech is seeing a significant degradation in fundamentals,” said Justin Kelly, CEO at Winslow Capital Management. “That’s a substantial change in the long-term outlook for these companies, and why they’re no longer the leadership.”

Difficult backdrop

The economic backdrop at the end of 2022 is harsher than it was a year ago. High inflation has been a driving theme of the year, along with the Federal Reserve’s attempts to combat it through aggressive interest rate increases.

The yield on the 10-year Treasury has more than doubled in 2022, while the US Dollar Index is on track for its biggest one-year jump since 2015. Both are toxic for the fast-growing, highly valued companies that dominate the Nasdaq 100.

While recent reports show price pressures are beginning to cool, Fed Chair Jerome Powell said on Wednesday the central bank isn’t close to ending its anti-inflation campaign.

Such conditions have made 2022’s tech rout notable not only for its scale, but also its length. The Nasdaq 100 hasn’t closed above its 200-day moving average since April, its longest such stretch in 20 years.

Big tech loses influence

This selloff reduced the importance of the so-called FAANG group of companies that had dominated the market. The cohort - Facebook owner Meta, Amazon, Apple Inc., Netflix Inc. and Google parent Alphabet - now accounts for about 13 per cent of the S&P 500 Index’s weighting, the lowest in more than two years. That’s down from a record 19 per cent in 2020.

While the group remains well liked on Wall Street, history suggests the market leaders of one era almost never dominate the next one.

“We’ve had a decade of outperformance,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. “Each time tech fell, investors bought the dip and were validated. It will take time for people to accept that things have changed.” He cited “above-average valuations and weak earnings momentum” as reasons he is underweight the sector.

Biggest losers

A record 13 S&P 500 components have lost at least $100 billion in market value this year, and 12 of them are tech-related companies. Notable wipeouts: Amazon.com Inc. has lost $756.7 billion, Alphabet has shed $689.7 billion and Meta has seen $616.8 billion in value evaporate. The list also includes Apple, Tesla, Microsoft, Nvidia, and Netflix.

Depending on how the last two weeks of December pan out, this group could get a couple of other technology stocks to join them: Intel Corp. and Accenture Plc’s losses sit at around $90 billion.


There were some bright spots within the sector. “Value” tech staged a comeback, as investors favored shares of dividend-paying companies that sell at low earnings multiples. International Business Machines Corp., for years an underperformer, soared 18 per cent this year including dividends, while Hewlett Packard Enterprise Co. is up 6.1 per cent on a total-return basis. The S&P 500’s tech sector index is down 23 per cent.