Wall Street pays significant attention to the technology sector as tech companies typically deliver substantial returns to investors. However, the volatile nature of this industry means that tech stocks can especially short-term experience downturns. This volatility is typically a result of macroeconomic factors, company-specific challenges and market sentiment. Recently, the First Trust NASDAQ-100-Technology Sector Index Fund (NASDAQ:QTEC) has seen a decline of nearly 4% in July and another 6% in August, although it remains up 1.5% year-to-date.
When the broader economy raises concerns, investors become increasingly wary of tech companies that deliver less-than-perfect growth rates. This earnings season, we are witnessing notable declines in share prices of many tech names. In most cases, they have failed to announce strong results that justify high valuation metrics.
Therefore, in this article, we will discuss three tech stocks that have recently entered correction territory, each seeing a decline of more than 10% from their recent highs.
Confluent (CFLT)
Our first stock is Confluent (NASDAQ:CFLT), a player in the real-time data streaming space. Confluent offers two main products: Confluent Cloud, a managed cloud-native service, and Confluent Platform, an enterprise-grade self-managed software. These products facilitate the connection and processing of data in real-time.
As we write, Confluent’s stock is trading around $20.00. Yet, the company has seen its stock price dip significantly in recent months. For example, over the past month, it has lost well over 20%. Similarly, since the start of the year, CFLT shares have shed more than 13%.
Confluent went public in June 2021 amid high expectations, but it has struggled to maintain its lofty valuations as market conditions have changed. At present, the forward price-to-earnings (P/E) ratio for CFLT stock is over 87x. Overall, its valuation metrics are a lot higher than the industry average.
While Confluent continues to expand its customer base and revenue, growth has slowed compared to the earlier stages of its public life. This deceleration has made it challenging for the company to achieve profitability, with the most recent earnings reporting a loss of nearly $90 million.
Confluent also faces competition from larger players like Amazon’s (NASDAQ:AMZN) Amazon Web Services (AWS) and Microsoft’s (NASDAQ:MSFT) Azure, which offer their own real-time data streaming solutions. Although Confluent’s platform is specialized, the presence of such formidable competitors raises concerns about its ability to capture market share in the long term.
However, Wall Street is still bullish on CFLT shares with a 12-month median price target of $31.00. Such an up move would mean a gain of well over 50%. Yet, we believe the immediate market sentiment appears cautious for tech stocks like CFLT, with concerns over competitive pressures and macroeconomic factors.
Pinterest (PINS)
The social media platform Pinterest (NYSE:PINS) has also entered correction territory. The company is known for its visually-driven search and discovery engine. In late June, PINS shares were trading over $45, but now, Pinterest stock is around $29.
One of the primary reasons for Pinterest’s stock decline is the slowdown in user growth. After a pandemic-driven surge, the platform has struggled to maintain its user base, particularly in the U.S., its most lucrative market. There are concerns that Pinterest may have reached saturation in some areas, and its ability to reignite growth is uncertain. Following recent quarterly results, management provided a lower-than-expected sales outlook.
In addition to slowing user growth, Pinterest has struggled to effectively monetize its platform. Despite progress in building its advertising capabilities, it still lags behind social media giants like Facebook and Instagram, both owned by Meta Platforms (NASDAQ:META). In a tightening economic environment, advertisers remain cautious. And Pinterest has had difficulty convincing them it can deliver the same return on investment as its larger rivals.
Moreover, the shift towards video content on social media platforms has not played to Pinterest’s strengths. At present, platforms like TikTok and Instagram continue to dominate the short-form video space. As a result, Pinterest’s relatively static content offering may be seen as less appealing to both users and advertisers.
Nonetheless, analysts have a favorable long-term opinion on PINS stock as evidenced by a price target of $44.00. Such a move would mean a return of about 52%. As Pinterest continues to navigate numerous challenges, its ability to innovate in a competitive market will be crucial for its long-term success.
Procore Technologies (PCOR)
We conclude our discussion with Procore Technologies (NYSE:PCOR), a cloud-based construction management software company, which went public in May 2021. Like many recent IPOs especially among tech stocks, Procore’s stock initially soared but has since entered correction territory.
Since late July, PCOR shares have declined around 25%. A significant factor behind this decline is the market’s shift away from high-growth, unprofitable tech companies. More investors want to put their hard-earned cash into toward more stable, profitable enterprises.
Procore has yet to achieve profitability, which concerns investors despite strong revenue growth. The latest earnings report showed a reduced net loss of $6.3 million, down from $52.9 million a year ago. However, revenue guidance for the next quarter fell short of expectations, and slowing customer growth raised concerns about future prospects. In the current high-interest-rate environment, unprofitable tech companies like Procore are particularly vulnerable, as the cost of capital rises and investors become more risk-averse.
Meanwhile, the construction industry Procore serves faces challenges, including economic cycles, rising material costs, labor shortages, and supply chain disruptions. These factors may limit construction companies’ ability to invest in new software solutions like Procore’s.
Yet Wall Street believes the decline should be over for Procore share price. Analysts currently expect PCOR stock to rally around 21% from the current levels.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.