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Big tech stocks are getting crushed — here's the simple explanation why

Brian Sozzi

Reality continues to rain down on formerly high-flying big tech stocks. That reality? Sales growth in 2019 will probably be less explosive than 2018.

Blame slowing user growth at the likes of Facebook (FB) or more competition for Amazon (AMZN) from the increasingly digitally savvy Target – the fact is the sales growth environment for big tech is taking a turn for the worse. Sales for Facebook, Apple (APPL), Amazon and Alphabet (GOOGL) are expected to grow 17% in 2019 according to Jefferies, cooling from a blistering 26% pace this year. That deceleration in growth is indeed something many investors in big tech are not used to.

The sales outlook isn’t that much rosier for other household tech names sporting insane valuations. Twitter’s sales growth is expected to slow to 14% next year from 25% in 2018. EBay’s sales are seen rising 5% in 2019 versus 8% this year.

With sales poised to slow sharply, investors have taken it as a backdrop ripe for profit misses for key tech names. After all, these are the stocks Wall Street has been obsessed with for years – it’s unlikely many on the Street will alter their sky-high sales and profit estimates so easily.

In turn, the market has pounded big tech stocks.

Tech giants are having a bad time. (Graphic: Yahoo Finance)

Big tech stocks on a rough run

The Nasdaq Composite gained nearly 18% this year through August, but is down 10% since (and up only 1.8% in 2018 as of November 19’s close). Driving the recent slump is Facebook, Amazon, Apple and Alphabet being down 18% collectively over the last three months, according to Yahoo Finance data.

Fund manager exposure to global tech stocks touched the lowest levels since February 2009 earlier this month, says Bank of America Merrill Lynch.

Investors have taken their profits earned from big tech’s ascent earlier this year and bet on less sexy consumer staples. Amid the prospect for moderating global GDP growth in 2019, staples such as Coca-Cola and Procter & Gamble have gained favor for their steady results and attractive dividend payouts.

Over the period between Sept. 1 and Nov. 15, consumer staples have returned 3.5% vs. the Nasdaq’s 9% drop, Jefferies notes. Coca-Cola and P&G are up 11% and 13%, respectively, since September.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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