Earlier this year, I wrote about many investors shying away from the “app” scene, in favor of sure profits. In many ways, this mirrored what was going on in January with a “flight to quality” and many investors chased after safe returns which would ostensibly be hardware.
Ultimately the flight to quality in tech companies didn’t catch as much steam as the general market. Undeterred by this slight blip, many major tech companies are launching IPOs this year. According to CNBC there have been 53 this year that have raised $8.5 billion, far more than in any other year and many investors believe that the volume of companies going public is a bit dangerous and almost bubble like.
Which probably explains why recent filings have fallen short. The reasoning being for many, that the next early stage drug developers, or the next big cloud computing firms do not offer as much promise and many models are not sustainable or worth getting burned on if things go south quickly which they can.
Should we be worried though by a reluctance to invest in Tech? Typically growth stocks such as those early stage drug developers or cloud computing firms are lapped up and quickly rise in a strong economy and for many hedge funds and large investors to avoid the risks can’t bode well. However, this might not be all bad. After all, the Wall Street Journal believes that many of these hedge firms and investors are just investing “defensively” rather than staying fully averse.
This kind of logic is fairly understandable given that the market has been in some turbulence and many companies that are listing themselves as of late either have been in very specific markets or have merely caught on. Weibo is a unique microblogging site in China and opened up with fairly underwhelming results. Alibaba is about to announce the date for PO and while they are very diversified in terms of services, how they will change direction or specialize has some United States investors concerned that perhaps the IPO market is overplaying its hand and other indicators in and around the market aren’t strong enough to support blindly going after the biggest tech stocks.
That’s not to say defensive investing is a bad thing, nor is it a sign of worse things to come. We’ve seen fears of bubbles pop up quite a few times over the past year. When it was rumored that the Fed’s QE programs were creating an asset bubble, but ultimately stocks corrected somewhat and expectations tempered appropriately without going overboard. Likewise in tech, now is just not the best time, especially with so many IPOs, investors would expect a few to fail or produce underwhelming results. By pursuing this strategy, investors and hedge funds are managing to remain fairly optimistic about the market as a whole, and temper the rise in tech.