Big Tech Faces Significant Challenges in 2023
Big Tech is experiencing its toughest year since 2022. A recent uptick in yields might intensify the strain on this sector, drawing from historical trends, according to Barclays. The performance of these stocks has lagged behind the S&P 500 for 92% of the year so far, noted Stefano Pascale, who leads U.S. equity derivatives strategy at Barclays, in a recent client communication. If this trend continues, Big Tech could be on track for one of its poorest 12-month performances since 2013, with only 2022 being worse, as indicated by the strategist’s findings.
“In fact, Big Tech (excluding Tesla) has trailed the S&P for most of 2026,” Pascale remarked, referencing major companies like Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. “Our research shows that contraction in valuation multiples is the main reason for Big Tech’s struggles this year.” On Tuesday, the Invesco QQQ Trust fell by over 1%, while the S&P 500 declined by less than 1%. These large tech stocks are once again underperforming the broader market amidst rising yields, which are reaching their highest levels in years, consequently putting pressure on stock valuations.
On Tuesday, the yield for the key U.S. 10-year Treasury note peaked at 4.8%, and the yield for the 30-year Treasury rose above 5.2%. This 10-year Treasury yield reached its highest point in 20 months. Long-term bond yields are increasing, following recent U.S. military actions in Iran, which have pushed energy prices higher and heightened market sensitivity. Moreover, some recent U.S. economic data has fallen short of expectations, adding to investor unease. These circumstances have led some market participants to anticipate that the Federal Reserve might raise interest rates in September, echoing the scenario that resulted in the underperformance of tech stocks in 2022, according to Barclays.
Pascale pointed out that in 2022, Big Tech was perceived as one of the main victims of the aggressive Fed tightening and the resultant post-pandemic valuation compression. Yet, there remains a possibility that new AI-related investments could “alleviate concerns over capital expenditures,” which have been pressuring tech stocks, including those of hyperscalers. “The fundamental idea is that, in the long run, this could ease worries about hyperscaler investments outpacing cash flow, while also creating demand that wouldn’t have otherwise surfaced,” Pascale explained, highlighting how these developments could benefit hyperscalers and semiconductor firms.
