Why this market pullback may be good for Big Tech

Big Tech companies are seeing red as stock markets plummet on Monday. The most recent earnings reports from some tech giants, like Microsoft (MSFT) and Alphabet (GOOG, GOOGL), have had some investors questioning whether heavy AI investments are creating expectations and valuations that are too high. Some investors believe this pullback might actually benefit these tech names in the long run.

Yahoo Finance reporter Josh Schafer breaks down the details, providing insights into the tech sector's performance.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video transcript

Let's take a look at some of today's big movers and we gotta start off with the selling that we are seeing in tech.

We've also have Josh Schafer Markets reporter here with me to break it all down.

But Josh, let's take a look at what we're seeing on the screen and that's Microsoft and alphabet.

Both of those names in the red off the lows of the session.

We're only about 50 minutes into the training day, but you're looking at Microsoft now off just about 3% alphabet also seeing some losses here and we're seeing some unwinding of the trades that had been working, right.

So we'll out of the weakness that we are seeing play out within the market, very broad based.

But really a lot of the bulk of that selling action coming from some of these mag seven names that had been working now for so long.

It's a continuation of the trade that we've been tracking for several weeks now, right?

When you take a look at what's led the market lower since basically mid July, it's been big tech, right?

So it's not surprising on a day like today to see big tech weeding the way lower.

I've talked to a couple of strategists this morning that have essentially argued, it might actually be a good thing that big tech is what's leading the market lower.

When you look at the sectors on the day, the fact that you only see consumer discretionary in big tech lower than the S and P 500 you can pull a positive spin out of that, which is people keep wanting to sort of unwind their mag seven trade from those names you're looking at on your screen, but might actually be interesting putting money to work elsewhere.

It's not a complete flight to safety panic move.

It's more so.

Ok, let's reposition and get into something else that could work.

I thought Kevin Gordon at Schwab made a great point about big tech earnings last week to me.

He said it really was no different than the economic data story.

It's just a story of expectations and we had gotten to a point with a lot of these stocks trading near all time highs that the expectations for them to keep beating earnings and raising revenue guidance and continuing to just go up up and up at some point, you just can't meet those expectations.

And so it's not to say that those earnings weren't good because I think a lot of analysts we've talked to over the last week, look at most of those companies earnings and say the fundamental story is in pretty good shape.

It's the fundamental story isn't quite as great as the market might have hoped.

And so you're seeing people just pull back their bets a little bit.

Yeah, exactly.

We talked a lot about the lofty expectations heading into earnings season and how high the bar had been set for so many of those mag seven companies.

And you're right because when you take a look, Lisa, all the ones that have reported except for NVIDIA so far, they have reported pretty solid.

I mean, this is a broad stroke here, but I think the overall takeaway so far this earnings season has then they, they have been holding up, they have been showing impressive growth.

But of course, the question is going forward the momentum or I guess to the extent, maybe that some of that growth is going to slow, given those lofty, right?

And then you look specifically we're talking big tech and you look at what's down right now and what's down the most NVIDIA is down the most.

Why do you think it is down the most because those expectations had gotten so lofty?

Right.

And the stock was up 100 and 50% this year or more than that.

At one point, Tesla's down, Tesla had been ripping for the last three months to see Tesla down 6% a company where the fundamental story is in question and people are wondering about the earnings trajectory.

It just adds up and to see other stocks being weighed down by a lesser extent, I do think again, you find a little bit of solace in sort of that market action.