Tech Stock Selloff: What Canadians Need to Know

The TSX outperformed Shopify (TSX:SHOP)(NYSE:SHOP) stock last week. Here’s why it happened, and what investors should do about it.

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A tech stock pullback was always an inevitability. But what wasn’t so obvious was the effect that a vaccine breakthrough might have on tech stocks. However, after last week’s Moderna (NASDAQ:MRNA) hopes buoyed markets both sides of the border, it’s clear that tech has an allergy to vaccines. Let’s explore some of the themes of last week’s market movements.

Tech stocks sank on vaccine hopes

Shopify (TSX:SHOP)(NYSE:SHOP) was down 10% over the preceding five days of trading. Early suggestions for the dip pinned the blame on investors suddenly getting spooked by Shopify’s high valuation. Such pundits overlook the nature of tech stocks. The whole point of these high-momentum plays is that bulls run them as far as they can. Bold latecomers leap on and ride the upside, and so it continues.

So, what changed? Why did Shopify suddenly tank? The most likely explanation is that biopharma outfit Moderna published a potential vaccine breakthrough. Tech stocks clearly don’t like vaccine breakthroughs. This is because the pandemic, and the resultant quarantine culture, supports their growth. It might seem obvious, in retrospect, that digitalization thrives on social isolation.

So, while Moderna leapt, Shopify sank. Other names sank with it. Docebo was down 4%, and Kinaxis flopped by 8.7%. There were wider losses, too. Twitter suffered a humiliating privacy breach on Thursday, with its verified users unable to Tweet after a Bitcoin scam targeted 130 top users. The hack cost Twitter stock 4% after hours. Shopify’s woes accumulated Friday when the platform went down.

Kinaxis’s supply chain software business was boosted by the pandemic’s emphasis on the precision management of essential goods distribution. Docebo’s cloud-based training model likewise benefited from a stay-at-home world. It barely needs to be pointed out that Shopify thrives on the online shopping trend and digitalization of retail. So, of course these names are allergic to a vaccine.

The quarantine boost was a one-off

But let’s get back to Shopify. This stock was never going to revisit the initial boost it got from the lockdown. As customers migrated en masse to online shopping, Shopify saw a massive uptick. Fast forward to last week, and the announcement of a potential vaccine breakthrough brought tech investors down to Earth with a bump.

And it just got worse on Friday. According to the Shopify Support account on Twitter: “Some merchants are currently unable to access their Shopify Admin, as well as experiencing issues with storefronts and checkouts. We’re investigating the issue and will keep you updated.”

Noted Twitter user William Shatner was less reserved: “Shopify is down! My store is unreachable! I’m losing million(s) of dollars every minute in potential sales!” Not great public relations for a company whose stock had already tanked 10% that week.

It may be time to start taking overvalued names off the table, with Netflix also taking a beating last week, compounding U.S. tech woes. Meanwhile, tech investors seeking new opportunities will soon have a hot IPO to check out. Apple device management provider Jamf is expected to go public July 23 offering fresh momentum at the ground level.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Apple and Netflix. Tom Gardner owns shares of Netflix, Shopify, and Twitter. The Motley Fool owns shares of and recommends Apple, Netflix, Shopify, Shopify, and Twitter. The Motley Fool recommends KINAXIS INC.

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