Tech investors seem to have a pretty short memory.
After Facebook's disappointing earnings results on July 25th wiped out $120 billion of market cap, or just over 20% on that day, tech stocks got hit hard.
Now, two key tech ETF's are rallying in the past three days, during which Apple became the first company ever to reach a market cap of $ trillion, after its extremely positive earnings report. The Invesco QQQ ETF is up more than 3% in the past three days. It fell as much as 4.2% after Facebook's earnings report, according to Bloomberg data. The Spider Tech ETF is up more than 1% in the past three days, after having dipped as much as 4.7%% after Facebook's earnings report.
The FAANG stocks (Facebook (FB - Get Report) , Apple (AAPL - Get Report) , Amazon (AMZN - Get Report) , Netflix (NFLX - Get Report) , Google (GOOGL - Get Report) ) largely got hit after Facebook earnings, but are rebounding now. In the past three days, Facebook is up more than 3%, after plummeting as much as 21% after earnings, according to Bloomberg data. Amazon is up more than 3% in the past three days, after dipping as much as 4.6% after Facebook reported. Apple is up more than 8% in the past three days, after a falling 2.3% after Facebook. Netflix is up more than 2% in the past three days, after a 7.7% dip after Facebook. Alphabet is up just under 1% in the past three days, after falling as much as 3.8% after Facebook.
It's likely that the classic 'buy-the-dip' strategy is engaged. And Josh Blechman, Director of Capital Markets at Exponential ETF's told TheStreet "that is the narrative," but more specifically, investors seem confident that the market reaction to Facebook's rough earnings report was overdone. "Was there an overreaction to the selling around Facebook?" he asked. " I agree."
Still, Blechman is concerned that, even though many tech companies, especially FAANG's, have largely solid business models, they're overvalued. Facebook's price-to-earnings ratio of 24.47 is currently higher than the Nasdaq's 23.13. Amazon, perhaps the priciest FAANG stock has a 165.90 price-to-earnings ratio. Netflix has a 143.16 P/E ratio. Alphabet has an earnings multiple of 33.05. Apple is relatively cheap at a P/E ratio of 17.97. "What is rather interesting is just the collective weight of tech right now," Blechman said. According to his data, U.S. tech's market cap weight makes it "the highest single sector concentration since the tech bubble," he said.
On FAANG's specifically, "people like to talk about them together, but they all face very different challenges," he said. "Within the tech space, they're in very different spaces."