Large Tech Stocks

robertbanking

Hello you very intelligent and wonderful people. Hope you have had a nice start to the week and you are doing well.

I know that many medium cap technology stocks like Peloton, Shopify, Spotify have all decreased in share price. Some of this is the pandemic hype is wearing off and that the feds in the US are increasing the interest rates. However what are your thoughts on buying Amazon at the current price it is please? Would a large cap stock like this be affected as much by the feds increasing interest rates, i know the business is growing in numerous sectors. Has anyone kindly got any thoughts on this please? The share price has kind of sustained where it was since the 2020 pandemic and it is not showing as much volatility?

Thank you very much for any support you can give and the wonderful people who are part of this forum. Take care and i wish you all the very best in your investing. 

theblueflash

Hey Robert - I guess firstly no-one on here will say Yes or No in terms of advising a buy or otherwise (me included)

There are some tech giants - in this case with Amazon/AWS, a tech and retail giant, who are dominant in many aspects of their markets, if not all - that have weathered the storm of last 2 years very well. Microsoft is another one who are dominant in their markets and to a certain extent with both of them - some customers of theirs will feel that it’s very easy to continue to build and grow their own businesses on their services and they are in a dominant pricing position which is generally a good thing (I stress, for them that is !) One way to look at it is that if we locked down again, both those businesses would most likely thrive again, and when we leave lockdown, their customers are unlikely to stop using their services. Unlike for example even Netflix who’ve seen a post-pandemic plunge. They are also in a strong market controlling mode - with less reliance on others - e.g. unlike TESLA who need an entire market and supply chain and global gov policy to go their way with many disruptive influences , they are navigating this reasonably well , but it is challenging for them.  I know this doesn’t help but I did want to point out that with Amazon Web Services - Amazon have both a tech play that is dominant and the better known retailing, & entertainment business so very well placed. They are also about to embark on a stock split - which of course makes no material difference to their business but traditionally stock splits have seen organisations share prices benefit as they become more accessible to more buyers and markets. Obviously you pays your money and takes your choice - good luck with your decision! 

george4064

Read up on discounted cashflow valuation method, then do a valuation comparison when the discount rate is 0.1% vs 2.0%. You’ll see how big the difference is in the forecast valuation is, and that’s what affecting Amazon (and many other companies) but particularly technology companies like Amazon because they have PE ratios where investors are buying into the company to benefit from future profits.

Overall, rising interest rates (or the expectation that they will rise, or rise further) increases the discount rate which also raises investors expected return and therefore Amazon stock is slightly less desirable as a result.

GazzaBloom

Over the long term (20 years+), large cap tech should perform broadly in in line with the general market trends, either up or down, there will be some sector nuances such as rising interest rates affecting expectations on future earnings as tech tends to be categorised as growth stocks, so far this year growth stocks are down more than value stocks in line with expectations on the interest rate rises, also there some company specific factors affecting share prices, such as the recent Meta drop in price, that will impact individual companies.

I prefer to invest in tech stocks sector via an index fund, I hold the L&G Global Technology Index Trust Fund in my ISA, which tracks the FTSE World-Technology Index of 267 companies. It's US heavy at 79% and follows all of the household names such as Apple etc. but does contain stocks from all over the world, Taiwan Semiconductor Manufacturing, for example, makes up 3.6% of the index.

Not sure if that helps or not?

robertbanking

Thank you very much for your replies, i found them all amazing and very helpful. I cannot thank you enough for all your input, it has been incredibly helpful. 

thebluefash the reason i asked about Amazon is it appears to have sustained its share price after the pandemic, whereas other stocks like Peloton have not. I really appreciate your advice on the stock including its strong market controlling mode and its dominance in many aspects of their markets. Unlike Peloton which was a hyped interactive gym equipment at home business which lost considerable value once the pandemic was over. This also has alot smaller market capitalisation than Amazon, i really appreciate your post it was very helpful. 

george4064 the discounted cashflow valuation method, do you kindly please have an example calculation for instance on how you would calculate this please for instance for Apple stock? If you could kindly share some insight i would be forever grateful i have read about this now but not exactly sure how this is calculated unfortunately. This appears to be a good tool to test the forecast valuation of a stock. Thank you very much for sharing about this, it means alot.  

george4064

robertbanking said:

Thank you very much for your replies, i found them all amazing and very helpful. I cannot thank you enough for all your input, it has been incredibly helpful. 

thebluefash the reason i asked about Amazon is it appears to have sustained its share price after the pandemic, whereas other stocks like Peloton have not. I really appreciate your advice on the stock including its strong market controlling mode and its dominance in many aspects of their markets. Unlike Peloton which was a hyped interactive gym equipment at home business which lost considerable value once the pandemic was over. This also has alot smaller market capitalisation than Amazon, i really appreciate your post it was very helpful. 

george4064 the discounted cashflow valuation method, do you kindly please have an example calculation for instance on how you would calculate this please for instance for Apple stock? If you could kindly share some insight i would be forever grateful i have read about this now but not exactly sure how this is calculated unfortunately. This appears to be a good tool to test the forecast valuation of a stock. Thank you very much for sharing about this, it means alot.  

You need to learn about how discounted cashflow forecast (DCF) model works. You’d be better off learning it yourself, just Google it.

Alternatively you might found some ‘good’ info if you Google; *company name* DCF

steampowered

Amazon is a great stock, so it is valued accordingly.

Personally I think Amazon stock is a pretty safe bet. They are mature, diversified across many different businesses and it's very difficult to see how they will do anything but continue to be successful.

It's certainly much lower risk than a business like Peloton or Spotify which only really does one sort of business. 

However, as always with individual stocks, there are no guarantees. Amazon's biggest earner is Amazon Web Services and it is entirely possible that this might become less profitable in future if more competition enters that market. If you want lower risk then go with an index fund.

sebtomato

 If you want lower risk then go with an index fund.

Issue with index funds is that they have Apple, Microsoft, Amazon etc. also as a large proportion of their investment, because those are large cap.

Of course, investing in a fund instead a single company is always better to reduce risk.

Amazon is doing fine, but their profits come from AWS (cloud). All they need is a cyber attack or some long outage, and the stock can drop massively in a short time.

GazzaBloom

sebtomato said:

 If you want lower risk then go with an index fund.

Issue with index funds is that they have Apple, Microsoft, Amazon etc. also as a large proportion of their investment, because those are large cap.

Of course, investing in a fund instead a single company is always better to reduce risk.

Amazon is doing fine, but their profits come from AWS (cloud). All they need is a cyber attack or some long outage, and the stock can drop massively in a short time.

What is that an issue? I agree that the majority of global or US index funds will feature these stocks and it's hard to avoid them but I'm not sure why you would want to.

Apple and Microsoft also feature as a holding in the default multi-asset default managed pension funds of at least Aviva & Standard Life, probably many of the other large UK pension providers as well.

adindas

robertbanking said:

Hello you very intelligent and wonderful people. Hope you have had a nice start to the week and you are doing well.

I know that many medium cap technology stocks like Peloton, Shopify, Spotify have all decreased in share price. Some of this is the pandemic hype is wearing off and that the feds in the US are increasing the interest rates. However what are your thoughts on buying Amazon at the current price it is please? Would a large cap stock like this be affected as much by the feds increasing interest rates, i know the business is growing in numerous sectors. Has anyone kindly got any thoughts on this please? The share price has kind of sustained where it was since the 2020 pandemic and it is not showing as much volatility?

Thank you very much for any support you can give and the wonderful people who are part of this forum. Take care and i wish you all the very best in your investing. 

Mega cap stock (Aka FAANG Stocks) five prominent American technology companies: Meta (FB) (formerly known as Facebook), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) (formerly known as Google), are growth stocks which are already profitable. So it is relatively safe bet imo. You could get exposure to these stocks by investing in funds such as S&P500, Vanguard Life Strategy VL.

I personally consider it a relatively safe bet as I have traded (FB) Amazon (AMZN), Apple (AAPL) multiples times in the past, some are even with leverage during the bull market. Sofar, I have not incurred any loss trading these stocks.

Everything has "a limit to growth". If the stocks have grown to Trillion companies, how high the growth could be in the future. Keep in mind a trillion UK GDP is just around 2.708 trillion .

In the opposite  Peloton, (I will exclude this) Shopify, Spotify are are high growth stocks, high risk high reward play. They are riskier but they also provide more reward, let alone if you get it when they were on the dip around Jan/Feb. Just look at at Tesla (TSLA). Just look at AMZN in its infancy, at one point  Amazon stock lost-more than 90%, 50%+ a few times. See where they are now ??

https://www.cnbc.com/2018/12/18/dotcom-bubble-amazon-stock-lost-more-than-90percent-long-term-investors-still-got-rich.html

Noone has a crystal ball, so by the end of the day it will depend on your attitude to risk attitude. Whatever you decide make sure you do your own DDs, especially if involve a large sum of money.

Winebottle

Too expensive for me but I would have said that 5 or 10 years ago and been wrong.

There has to be a limit on the size these companies can grow get to. 

What goes up must come down eventually  and although, I may be dead by the time that happens to Amazon, I think the world moves on in unforeseeable ways. They are not the first innovators and they won't be the last.