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Investors on Wednesday plunged cloud software stocks on fears that interest rates could rise longer than previously expected.
Initially, stocks rose as the Federal Reserve announced a 75 basis point hike in the benchmark interest rate. But after Powell began speaking at the central bank’s press conference, the stock reversed its gains and fell to session lows.
Federal Reserve Chairman Jerome Powell said data showed the “ultimate level” of interest rates would be higher than the central bank expected.
Cloud stocks are particularly sensitive to rising interest rates because investors prefer to hold stocks with stronger current earnings that are less dependent on future growth. Bill.com, Twilio When cloudflare Both lost 10% of their value on Wednesday and are down at least 53% so far this year.
In 2022, U.S. and international central banks have repeatedly pushed interest rates higher to stem spikes in the prices of food, energy, and other commodities.For companies that pay cash dividends to investors such as IBMwhich is the only large-cap tech stock to rise this year and is less risky.
But for loss-making companies (and many cloud stocks aren’t profitable), the math is quite different. Valuation results from the present value of future cash flows. High interest rates mean low cash flow.
When interest rates were low, and especially during the Covid-19 outbreak in early 2020, cloud software became more popular and stock prices soared. Earnings for high-growth companies have doubled or even tripled year-over-year. But my feelings have changed.
WisdomTree Cloud Computing Fund, a benchmark of cloud stocks, is down 51% in 2022 compared to a 110% rise in 2020. The S&P 500 is down 21% this year.
On Wednesday, the WisdomTree fund fell 7.5%, its biggest drop since June. The technology-focused Nasdaq Composite Index fell 3.4% and the S&P 500 fell 2.5%.
the biggest loser zoom information, providers of data for sales representatives and other employees. ZoomInfo founder and CEO Henry Schuck said on Tuesday that the company faces challenges related to macroeconomic conditions, despite achieving 46% year-over-year revenue growth. rice field.
“As we went through the third quarter, we started to see more macro pressure on deals, higher levels of deal review and even longer sales cycles,” Shook said on a conference call with analysts on Tuesday. “This started late in the quarter, so it had a minor impact on Q3 results. This upward trend continued into Q4 and will impact growth in the short term.” I anticipate.”
cloud strike, Qualtrics and other cloud software stocks have reported more scrutiny of deals in recent months.
Wednesday HR software maker paycom announced its 33rd consecutive quarter of profitability. Shares fell about 8% in Wednesday’s selling.
look: Amazon’s cloud business is suffering from Fed uncertainty, says Big Tech’s Alex Kantrowitz
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