Triple Whammy of Bad News Can't Stop Party for Technology Bulls

(Bloomberg) -- U.S. technology stocks are on an unstoppable roll as the new year kicks off. And even three negative news stories on large-cap companies aren’t denting investor confidence yet.

Intel Corp. has confirmed that its chips are vulnerable to hacking and says other companies face the same issue. Tesla Inc. pushed back a production target for its Model 3 again. And Apple Inc.’s offer to replace iPhone batteries cheaply is predicted to cut sales of new handsets by millions of units this year.

While this may suggest some caution on the high-flying sector is warranted, the market doesn’t seem particularly concerned. The Nasdaq 100 Index had its best first three days of any year since 2003, gaining 3.1 percent. The Philadelphia Semiconductor Index posted the biggest three-day gain in 18 months through Thursday, even as Intel fell.

“To upset the apple cart it would have to be one of the new leading-edge technology companies that really drop the ball,” said Nick Ford, a London-based fund manager at Miton Group. He cited Workday Inc., Salesforce.com Inc., Nvidia Corp., Facebook Inc. and Alphabet Inc. as examples. “Technology stocks should probably have another good year.”

Ford, who called Intel “an old tech name,” added that Apple was the only one of the three companies that give him cause for concern because of its large supply chain. “There’s little room for error on iPhone X sales, and if you do get some disappointment on that it could upset sentiment on the sector,” he said.

The fundamental backdrop for equities also remains bullish. Synchronized global economic expansion is driving risk appetite, while monetary conditions remain easy. The MSCI All-Country World index has advanced 2 percent so far this week.

“Fundamentally, earnings growth is very strong and the multiples are not massively stretched,” said Ben Barringer, an analyst at Quilter Cheviot. 

Cloud computing, cybersecurity and artificial intelligence are more-dominant themes for tech stocks than news out of Intel, Tesla and Apple, he said.

Other analysts have also played down the problem at Intel, while investors are potentially conditioned to delays at Tesla.

Still, technology stocks won’t repeat 2017’s banner year, according to some strategists and analysts. Any red flags in the upcoming earnings season will be closely scrutinized, as the industry gains prominence for developed-market bourses as well as those of developing nations. Tech companies now make up about 24 percent of the S&P 500 Index, and represent about 28 percent of the MSCI Emerging Market Index.

--With assistance from Lu Wang

To contact the reporters on this story: Beth Mellor in London at bmellor@bloomberg.net, Samuel Potter in London at spotter33@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Cecile Gutscher, Sid Verma

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