Are tech stocks immune to the pandemic?

    26 May 2020

    Older readers might remember that we had a bit of a stock marker crash a couple of months ago. But if you are entirely invested in tech stocks it will have pretty well passed you by. Tech stocks have not only staged a ‘V’-shaped recovery from the nadir of the market on 24th March, many have gone on to set new heights. Amazon, which peaked at $2170 in February was at $2409 earlier this week. Netflix is up from $387 to $454.

    Those are businesses which have benefitted especially from lockdown, but even tech businesses which rely on advertising for much of their income – an income stream which has collapsed for others – seem to have sailed through the crisis with hardly a whimper. Facebook, $223 in February is back up to $210 and Alphabet, the parent company of Google, $1516 in February, is back to $1373.

    Even tech businesses which you might have expected to suffer from economic collapse have done fine. Apple seems to have suffered little from the closure of phone shops — $327 in February, it is back to $307. Car manufacturers generally have had a torrid time, but Tesla, $889 in February is back to $803 – and that was in spite of its CEO, Elon Musk, tweeting Gerald Ratner-style, that is share price was ‘too high’. A year ago it was $200. Just imagine what Shell’s share price would do if its CEO sent out such a tweet.

    We keep being told that the Covid-19 pandemic will change everything, but when it comes to markets it seems to have changed remarkably little. We are still in the endless loop in which we have been caught for over a decade: with tech stocks endlessly whizzing upwards, seemingly immune to bad economic news – while all other stocks get bashed for the tiniest of hiccups in their figures. Tech stocks are being allowed to live by completely different rules.

    Take the one share in the FTSE which gets touted as a ‘tech’ stock – Ocado, the online grocer. You might expect supermarkets, online supermarkets in particular, to have done well out of lockdown, but none have been bid upwards like Ocado, 1327p in February and 2056p this week. It’s not even as if Ocado has performed particularly well during the crisis – early on it had to close down its website for a while, having been overwhelmed, leaving other supermarkets to pick up its business.

    Any other business whose losses widened last year from £33 million to £186 million would have been slaughtered by the markets, but not Ocado. It trades not as a grocer but as a tech company which – one day perhaps – might make a profit by selling its technology around the world. But it wasn’t even harmed when one of its robots, in a fit of pique worthy of a deranged human employee, burned down one of its warehouses in Hampshire in February 2019.

    To call Ocado, Amazon and all the rest ‘tech’ companies is a bit odd. Virtually every company uses technology in some way, but they just don’t get called ‘tech’ companies. But if your company can claim that title, then you are catapulted into another world where profits scarcely matter – your share price will get bid up regardless. Just remember what happened to the Long Island Iced Tea Corporation in 2017 when it rebranded itself the Long Blockchain Corp (in spite of continuing to make iced tea). Its share ratcheted up by 289 per cent almost overnight.

    We are still in the midst of manic boom longer and in many ways even more excessive than the Dotcom boom of the late 1990s. Prices are going up because they are going up – and not even what looks like being the deepest recession in 300 years can seem to stop them.