2 Factors That Cause Investors To Stay Away From Hardware Stocks For Now

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 "For now, it's like not investing in the computer sector."


Inflation concerns and the Federal Reserve's (Fed) efforts to offset rising prices and consumer spending have prompted investors to move away from hardware stocks such as Dell Technologies, HP Inc and Hewlett Packard Enterprise Co.


Instead, investors are turning to companies that are less reliant on economic cycles in boosting sales such as Apple Inc and Amazon.com Inc.


Robert W Baird & Co. technology strategist Ted Mortonson thinks investors are looking for stocks with strong growth backgrounds.


In the last week alone Dell has seen an 11% drop which is the biggest drop since February while HP recorded the biggest drop since May 2020.


As a result, Morgan Stanley downgraded the valuation of the two stocks in anticipation of a weak performance due to rising costs, while Goldman Sachs wrote Dell's valuation based on moderate demand for it.



In general, hardware companies have performed well this year due to high interest prospects so many investors are moving out of high value growth stocks to move into cheaper technology firms.


However, over the past few weeks, investors have been seen selling shares of technology firms amid concerns over economic growth.


Cautious sentiment on value stocks versus rebounds in megacaps stocks like Apple, Amazon and Alphabet Inc is seen as the best long-term investment.


Growth technology stocks rose 7% since March 14 when the Nasdaq 100 index led while technology declined at the same time.


Meanwhile, the recent selling session has made hardware stocks cheaper with Dell selling 7.2 times its estimated earnings which is the lowest since November while HP at 8.3 times.


Analysts forecast that profits for hardware and technology companies will increase by 8.8% in 2022, 13% lower than expected for the entire technology sector and 10% in the S&P 500.


Counterpoint Research also predicts global PC shipments will fall for the first time in 4 years as pandemic -driven demand for computers grows gloomy.

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