In this article, we discuss 10 tech stocks that analysts are cutting the estimates on. If you want to see more stocks in this selection, check out Analyst are Cutting Estimates on These 5 Tech Stocks.
The first half of 2022 has been brutal for the stock market, and these are the worst six months on record since 1970. The stock prices have plummeted on the back of soaring inflation and shaken consumer confidence. Technology stocks have faced the worst selloff in 2022, which affected valuations severely. Even the biggest tech firms such as Amazon.com, Inc. (NASDAQ:AMZN), Meta Platforms, Inc. (NASDAQ:META), and NVIDIA Corporation (NASDAQ:NVDA) were not safe from the market selloff, and their stock prices have dropped over 30% year to date as of July 18.
Valuations for notable tech firms stumbled in the first quarter of 2022, given the Russian war on Ukraine impacting business operations and enhancing the supply constraints that began amid the pandemic. Owing to the Federal Reserve’s rampant rate hikes, the S&P 500 Index is down about 19% year to date, and the technology-heavy Nasdaq Composite index has also declined about 27%.
On June 21, Mike Loewengart, the managing director of E-Trade investment strategy at Morgan Stanley, told TheStreet that as the Fed sticks to its aggressive rate hikes in order to control inflation, investors should expect the technology space to remain volatile. Rising rates generally impact growth-oriented stocks, and paired with record-high inflation and low consumer sentiment, the sector is in for a rough ride. According to Loewengart, the hiring freezes and company wide redundancies are also signs of slowing earnings and weak future outlook in the tech sector. However, the analyst reassured that not all tech stocks will suffer the same fate, and those that offer core services and are integrated into the community fabric will survive and get through the current market environment.
Some of the most notable tech stocks that are on the radar of industry analysts include NVIDIA Corporation (NASDAQ:NVDA), Netflix, Inc. (NASDAQ:NFLX), and Upstart Holdings, Inc. (NASDAQ:UPST).
Photo by Chris Liverani on Unsplash
Our Methodology
Analysts have recently trimmed guidance, estimates, and price targets for technology stocks due to the current macro environment which does not favor growth plays. We selected 10 notable technology stocks for which analysts cut estimates recently.
10. Rackspace Technology, Inc. (NASDAQ:RXT)
Number of Hedge Fund Holders: 16
Rackspace Technology, Inc. (NASDAQ:RXT) was founded in 1998 and is headquartered in San Antonio, Texas. It operates as a multi cloud technology services company through Multi Cloud Services and Apps & Cross Platform segments. On July 15, the stock sunk to a new low of $5.63 as Barclays analyst Ramsey El-Assal downgraded Rackspace Technology, Inc. (NASDAQ:RXT) to Underweight from Equal Weight, slashing the price target to $5 from $10. The analyst cited macro volatility and said that the latest strategic review of the performance indicates impacted growth and profitability. The analyst sees longer-term sector tailwinds, but observed that Rackspace Technology, Inc. (NASDAQ:RXT) shares will be pressured “until a clearer strategic path emerges”.
According to Insider Monkey’s data, Rackspace Technology, Inc. (NASDAQ:RXT) was part of 16 hedge fund portfolios at the end of Q1 2022, up from 14 funds in the earlier quarter. Jeremy Hosking’s Hosking Partners is the largest stakeholder of the company, with 708,792 shares worth $7.91 million.
Like NVIDIA Corporation (NASDAQ:NVDA), Netflix, Inc. (NASDAQ:NFLX), and Upstart Holdings, Inc. (NASDAQ:UPST), Rackspace Technology, Inc. (NASDAQ:RXT) is on the radar of market analysts amid the broader tech selloff.
9. Nuvei Corporation (NASDAQ:NVEI)
Number of Hedge Fund Holders: 20
Nuvei Corporation (NASDAQ:NVEI) is a Canadian payments technology firm that provides transactions across mobile, in-app, online, and in-store channels to merchants in North America, Europe, the Middle East and Africa, Latin America, and the Asia Pacific. Among the hedge funds tracked by Insider Monkey, 20 funds were bullish on Nuvei Corporation (NASDAQ:NVEI) at the end of Q1 2022, down from 24 funds in the preceding quarter.
Goldman Sachs analyst Will Nance on July 14 downgraded Nuvei Corporation (NASDAQ:NVEI) to Neutral from Buy with a price target of $40, down from $72. The analyst thinks Nuvei Corporation (NASDAQ:NVEI)’s revenue growth, especially in its crypto segment, could be impacted as a result of the crypto crash. Additionally, weak economic trends will weigh on Nuvei Corporation (NASDAQ:NVEI)’s “largely discretionary verticals” of digital gaming, currency trading, sports betting, and crypto trading, the analyst told investors. Ongoing currency movement “could be an incremental drag on back half of the year revenues”, warned the analyst.
8. Yelp Inc. (NYSE:YELP)
Number of Hedge Fund Holders: 21
Yelp Inc. (NYSE:YELP) was incorporated in 2004 and is headquartered in San Francisco, California. The company operates a platform where customers can leave reviews for local businesses in the United States and internationally, in addition to offering targeted search advertising for businesses, as well as hotel and food reservations for users. In Q1 2022, 21 hedge funds were bullish on Yelp Inc. (NYSE:YELP), compared to 24 funds in the last quarter. Ken Fisher’s Fisher Asset Management featured as the largest stakeholder of the company, with approximately 3 million shares worth $101 million.
On July 15, Goldman Sachs analyst Eric Sheridan downgraded Yelp Inc. (NYSE:YELP) to Neutral from Buy with a price target of $33, down from $49. The analyst is “constructive” on Yelp Inc. (NYSE:YELP)’s capacity to sustainably grow monetized advertising locations and gain a higher share of existing advertiser budgets. However, the macroeconomic conditions and aggressive competition will impact local advertising spending for the coming two years, the analyst told investors in a research note.
7. Wix.com Ltd. (NASDAQ:WIX)
Number of Hedge Fund Holders: 24
Wix.com Ltd. (NASDAQ:WIX) is an Israel-based company that runs a cloud-based platform allowing users to create a website or web application in North America, Europe, Latin America, Asia, and internationally. On July 14, Morgan Stanley analyst Elizabeth Porter lowered the price target on Wix.com Ltd. (NASDAQ:WIX) to $77 from $85 and maintained an Equal Weight rating on the shares. On average, the analyst reduced 2022 and 2023 revenue estimates by 1% and 3% respectively, and slashed price targets in her SaaS software coverage owing to higher evidence of soft demand. The primary question in the Q2 earnings season will be whether companies will report a more cautious growth outlook, said the analyst, who believes it “may be early for a clearing event”.
According to Insider Monkey’s data, 24 hedge funds were bullish on Wix.com Ltd. (NASDAQ:WIX) at the end of March 2022, down from 29 funds in the prior quarter. The collective stakes owned by hedge funds plummeted to about $559 million in Q1 2022 from $829 million in Q4 2021. The biggest Wix.com Ltd. (NASDAQ:WIX) shareholder in Q1 was Ricky Sandler’s Eminence Capital, with 1.2 million shares worth roughly $130 million.
In addition to NVIDIA Corporation (NASDAQ:NVDA), Netflix, Inc. (NASDAQ:NFLX), and Upstart Holdings, Inc. (NASDAQ:UPST), analysts are closely monitoring Wix.com Ltd. (NASDAQ:WIX).
Here is what Arch Capital Management has to say about Wix.com Ltd. (NASDAQ:WIX) in its Q1 2022 investor letter:
“The fund was down 15.3% since inception, the market does not agree with our assessments. The negative performance can be attributed to two stocks in the portfolio, Wix (NASDAQ:WIX) and Spotify (NYSE:SPOT), which have a negative contribution to fund returns of 5.39% and 9.19%, respectively, as of this writing. Take those stocks out and fund returns would be positive since inception.
This isn’t to make an excuse for the fund’s poor returns. We made the choice to buy Wix and Spotify in 2021, and so far the market has punished us for it. But that is in the past. All that we can do right now is evaluate potential investments and our confidence in whether they can produce forward returns of 15% or more.
Wix is a global website building company based in Israel that’s valued at $4.6 billion today. Put simply, Wix’s intuitive, drag-and-drop platform allows anyone to build and manage their own custom website without needing to write a single line of code. Though Wix has also developed some promising professional tools, its flagship DIY platform still comprises the majority of revenue, so that’s where we’ll focus.
A bit of background:
Prior to Wix, many small businesses lacked the digital expertise or know-how to establish an internet presence. While there were some available solutions like WordPress and other open-source platforms, the complexity and required security maintenance often forced small businesses to consult the help of external website design firms instead. However, with Wix, there’s no longer the need (for most businesses). Between Wix’s ease of use, professional-looking designs, and holistic suite of operational tools, small businesses now have everything they need to build and maintain their digital presence on their own.
Wix’s approach has certainly been well adopted in recent years as is evident by its rapidly increasing market share. Today, Wix is home to more than 6 million premium subscriptions (paying users), and the company powers an estimated 3.4% of all websites that use a content management system – versus just 0.6% five years ago…” (Click here to see the full text)
6. Upstart Holdings, Inc. (NASDAQ:UPST)
Number of Hedge Fund Holders: 25
Upstart Holdings, Inc. (NASDAQ:UPST) is a California-based company that operates an on-demand artificial intelligence lending platform in the United States. On July 17, Barclays analyst Ramsey El-Assal lowered the price target on Upstart Holdings, Inc. (NASDAQ:UPST) to $25 from $35 and kept an Equal Weight rating on the shares after the company posted preliminary Q2 results. The analyst slashed estimates for loan volumes through 2022 and for the foreseeable future. On July 11, Upstart Holdings, Inc. (NASDAQ:UPST) received a Sell rating from Goldman Analyst Michael Ng, who lowered its 12-month price target to $14 from $40, a decline of roughly 50% from the current levels. The Goldman Sachs analyst cited slowing economic growth and reduced consumer confidence for his Sell rating.
Among the hedge funds tracked by Insider Monkey, Vikram Kumar’s Kuvari Partners is a notable position holder in the company, with 296,738 shares worth $32.3 million. Overall, 25 hedge funds were bullish on Upstart Holdings, Inc. (NASDAQ:UPST) at the conclusion of the first quarter of 2022, with combined stakes worth $101 million, compared to 20 funds in the earlier quarter, holding stakes in Upstart Holdings, Inc. (NASDAQ:UPST) valued at $1.3 billion.
Here is what Vulcan Value Partners has to say about Upstart Holdings, Inc. (NASDAQ:UPST) in its Q1 2022 investor letter:
“Upstart Holdings Inc. is an artificial intelligence (AI) and cloud-based lending platform. Upstart’s stock price has been very volatile, but its value has grown steadily. Last year, the company grew its revenue by over 250% organically, which materially exceeded our expectations. In addition, the company continues to generate robust free cash flow and is launching new products to expand its business. Upstart’s value has increased consistently since we first purchased it. Following our discipline, we have added to our position when its stock price has declined and its price to value ratio has improved, and we have reduced our stake when its stock price has risen faster than its value.”
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Disclosure: None. Analyst are Cutting Estimates on These 10 Tech Stocks is originally published on Insider Monkey.
