Technical stock valuations have crumbled as the outlook for higher interest rates and a slowing US economy keep hammering markets. But they can’t keep falling forever.
And Slack Founder Stewart Butterfield hinted that quite soon, large company valuations will be too tempting for investors to ignore.
“The multiples probably amounted to something that looks reasonable,” the longtime tech industry director told Yahoo Finance Live on Salesforce’s Dream power conference. Slack, that was acquired by Salesforce for $27.7 billion in 2021, has been featured on Dreamforce with new platform innovations such as Canvas.
Butterfield acknowledged that “the last six months have been pretty tough for the tech sector.”
In September, the Federal Reserve increased interest for the third time since June by 75 basis points. Higher interest rates increase the cost of capital for many tech companies that thrive on new funding to fuel growth. Furthermore, with a steeper trajectory, as the Fed indicated on Wednesday, the economy could slow faster than expected and put pressure on elevated technical multiples.
As a result, technology stocks experienced another sell-off this week. Popular technology stocks such as Meta, AMD, Intel, Alphabet, Nvidia, Microsoft, Amazon and Spotify fell while the Nasdaq Composite lost more than 5% during the week.
“The open question for investors is still, are we seeing a change in demand and therefore an actual change in performance?” said Boterveld. “Because the multiples are probably about right, and if we collectively determine that we’re not going to see a real decline in demand, we’re not going to see a real decline in economic growth, then I think we’re going to see a lot from here.”
According to Butterfield, demand remains solid, underscoring the idea that investors can miss out on good fundamentals.
“What tech investors want is insight into a calm economic environment,” Goldman Sachs CEO Eric Sheridan told Yahoo Finance Live on the exchange. Goldman Sachs Communacopia + Technology Conference earlier this month.
“Tech is naturally a risk-premium, risk-on category of investing,” Sheridan added, “and when people are unsure about what inflation is, what is happening in the macroeconomic environment, what is the Fed going to do? then do? take more risk back into their portfolio.”