S&P/ASX 200 Index (ASX: XJO) tech stocks are having a day to forget.
In morning trade on Friday, the ASX 200 is down 1.6%.
The tech sector is broadly mirroring those steep losses, with the S&P/ASX All Technology Index (ASX: XTX) – which also contains some smaller tech companies outside of ASX 200 tech stocks – down 1.7% at this same time.
Here's how some of Australia's biggest tech shares are faring on Friday:
- Shares in cloud-based software solutions provider WiseTech Global Ltd (ASX: WTC) are down 1.7%
- Shares in software-as-a-service provider Technology One Ltd (ASX: TNE) are down 2.9%
- Shares in data centre operator NextDc Ltd (ASX: NXT) are down 2.2%
- Shares in location-sharing software developer Life360 Inc (ASX: 360) are down 2.4%
- Shares in accounting software provider Xero Ltd (ASX: XRO) are down 1.8%
Ouch!
Here's what's got Aussie investors spooked today.
ASX 200 tech stocks in the red
Aussie investors are taking their cue from US stock markets, which finished sharply lower on Thursday.
Overnight, the S&P 500 Index (SP: .INX) closed down 1.6%. And the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) ended the day down 2.2%.
AI chip-making giant Nvidia Corp (NASDAQ: NVDA) underperformed those losses, closing down 3.2%.
ASX 200 tech stocks, and indeed the broader global stock markets, are catching headwinds on a few fronts.
First, the odds of another interest rate cut from the US Federal Reserve in 2025 are receding. While most Australians were asleep, Fed Governor Michael Barr threw more cold water on a December rate cut, noting the central bank needs to be careful before moving forward with any more interest rate cuts.
The RBA has also signalled it is unlikely to reduce rates anytime soon. And technology-focused companies, often priced with future growth in mind, tend to be very sensitive to interest rate expectations.
Another stiff headwind battering ASX 200 tech stocks today is the growing concern of an AI investment bubble. That's despite Nvidia's strong earnings results this week.
What are the experts saying?
Commenting on the US market pullback that's dragging ASX 200 tech stocks lower on Friday, Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute, said (quoted by Bloomberg):
The Nvidia results, while positive, weren't enough to dispel doubts around whether valuations had gotten too rich and whether the recent move towards debt-based financing meant the investment levels were too aggressive without enough focus on shareholder returns.
A number of analysts are also pointing to the huge pullback in the Bitcoin (CRYPTO: BTC) price, noting the world's first and biggest crypto could be a proverbial canary in a coal mine.
Steve Sosnick, chief strategist at Interactive Brokers Group, said, "One of the things I'm watching right now is Bitcoin back to flirting with US$90,000 because, like it or not, it's become a real proxy for risk tolerance overall among investors."
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, added (quoted by The Australian Financial Review), "With Nvidia earnings now behind us and the Fed unlikely to cut in December, investors are left questioning what remains to drive a year-end rally."
Still, with most ASX 200 tech stocks now well off their highs, I reckon it's only a matter of time before bargain hunters with long-term investment horizons begin to offer support.
