Tech Stocks Are Down—Is It “Tech Rot” or Just Noise?

0:00Tech stocks go down. Everybody suddenly has a hot take. I mean, you look anywhere, ABC News, NBC News, CSNBC, you name it. Everybody's got the hot take that the bubble has popped. Rates are killing tech, AI is over, and data centers are just way too expensive. But is that really the truth? Or is there something simpler behind the tech stocks going down? Because truthfully, yes, tech stocks have dropped a little bit this month. But so today, Andrew and I are going to break down our kind of take on why these stocks are dipping, the effect it's going to have and what the truth is behind all these crazy, crazy headlines.

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2:24Stephen:The show for the long-term investor. We cut through the noise to focus on what works. Compounding, discipline, and the conviction to buy wonderful businesses and stick with them. Your path to financial freedom. Start now. And welcome back to Investing for Beginners. My name is Stephen Morris. He is Andrew Sather. and today andrew tecra intensifies his sell-offs grip global stocks or you know why was abcs i forget what abcs was hang on hang on let me pull it back up uh tech stocks are plummeting is ai to blame like man like you listen to the media bro like we are in a bad place with tech stocks and we need to be selling anything remotely techie right now because the doom and gloom is real i want to learn like how they came up with the whole rot thing like where did that become a good idea um i mean it's catchy it click i'm gonna click on it i mean true i guess it did its purpose right i read the article um every painstaking word of it but i mean it's all in my opinion andrew it's all just smut it value it brings no value whatsoever to an investor they're just complaining about a few stocks being down and it's not even down that much like we had to search when we were prepping for this episode to actually find what stocks they're talking about that are down.

4:11Stephen:Yeah, it's weird. I mean, when you start generalizing and grouping stocks in the categories, everybody loves labels. It's hard to separate the noise from the signal. And what's frustrating for people like you and I is it can affect more casual investors who maybe aren't as tuned in or haven't taken the time to educate themselves and can make them make choices about their investments that might not be beneficial to them for the long term. So we have to try to set the record straight, right? One of the details we mentioned off air, which grinded your gears and it grinds mine too, is you mentioned how the numbers that these different, I put sources in quotes because I I think that's a generous term, but the numbers that people are quoting around AI is just wildly, wildly ridiculous.

5:08Stephen:Do you remember what the ranges were on that? Like somewhere between like 40 billion and a trillion. And I don't think those numbers are ridiculous. It's just which number is it? Right. If you said a trillion, I'd believe you. Companies have dumped a trillion dollars into AI. I believe that. That makes sense. I think it's probably more, but it just shows me that they don't really know. Like at this point, they're just making up numbers because, you know, just thumbing through it through one of the articles, you know, I get to.

5:46Hang on. Let me now I can't find any numbers. So they're talking about a ETF that is a semiconductor ETF. it's down 6.2 % right now. I'm sure if I go back and I look, because this is three days old, if I go back and look three days ago, that ETF would have been down 6.2 % or somewhere close to it, like within a margin of error. 40 billion to a trillion? Like, there's no margin of error there. Like, that's just wildly inaccurate. Like, which is it? So it tells me that these guys really don't know, and they're just trying to upset people and frustrate people and get clicks. And that's what really ticks me off because this is the kind of nonsense that really can turn people away from the stock market and turning their money into an engine for their growth.

6:42But rather they just put it in a savings account, call it good because you got these knuckleheads scaring everybody.

6:50Stephen:Yeah, it's like, oh, okay, well, nobody knows anything anyways, right? That's kind of the thinking. Right. It's super, super frustrating. We can look at the CapEx numbers for Google, Meta, Amazon, and that could get you closer to a trillion dollars number. I imagine if we looked at, I don't think they've disclosed it yet, but I think it's coming down the line. Some of the revenue numbers for Anthropic maybe is closer to that$40 billion range. again, these are just wild guesses on my part of like where some of these numbers are coming from. But it makes me think of, I wrote something in our weekly email two weeks ago, I believe it was.

7:34Stephen:And it was almost as brilliant as a realization you had yesterday. But one of those where I'm like laying on the couch, can't sleep. and noticing that if you look at past IPOs and you look at past news narrative, kind of like things people were all talking about, I brought it back to, do you remember the whole GameStop craze and the whole crypto craze? Nope. Now, that sounds like, okay, those were like random events. But when I put the two and two together, it's like, how coincidental that the IPO for Robinhood was shortly after the whole GameStop craze. And the IPO for Coinbase was shortly after all the crypto craze.

8:28Stephen:And if you look at what are the IPOs coming for the rest of 2026, Anthropic has talked about going IPO. Open chat GPT has talked about, or open AI has talked about going IPO. So almost like the headlines are being manufactured to put our attention in a certain way. So that certain people make a lot of money. And it makes me wonder, because if you look back at, I remember back then, it was a great time to have an investing podcast because everybody was talking about getting into the stock market. And, you know, the stock market's changed now and anybody can do it. If these knuckleheads on Reddit did it with GameStop, anybody can do it.

9:10Stephen:And it was a great time. And it was like a lot of high energy around that kind of movement. And so I'm just seeing parallels between like all of the AI discourse and all of the AI enthusiasm. And I just wonder if after the big IPOs cycle through, I wonder if some of that's going to go away. And also, I wonder how much of this like space, SpaceX hype, this hype around rockets and data centers in space, how much does that go away now that that company is cashed into? I don't know, just kind of like a weird, interesting observation. but it just makes me think that some of this stuff is like not as consequential as we all want to make ourselves think it is but it is helpful in in generating hype around certain themes which hype doesn't have a great track record of continuing for a long time right so i guess i guess tech rot that phrase is an actual thing because i've found it in three different articles now and even morningstar is using that term and and their article about it as well um which is irritating because i really like morningstar um but i mean morningstar they're asking a really good question and that is something that's being talked about quite a bit and that is the ai is failing to bring roi thus far like they're not making money yet and i think that to me that's logical because the standard person isn't using ai like your your blue collar construction worker or, you know, whatever, like they're not using AI or if they are, that's very minimal.

11:14So, I mean, it would, I guess it kind of makes sense to me that they're not seeing a huge growth that way yet, but I mean, are you concerned at all that AI is never going to bring an ROI? because that's kind of the way the feeling I get of the question they're asking in this article is, is it ever going to come? Is the ROI ever going to come? And to be honest, I don't know. I don't know how to even begin to answer that question.

11:54Stephen:It's frustrating. My thoughts change on it as certain developments happen. did you hear about the whole fable thing that got shut down by the u.s government i did not okay so i guess i guess it was clod owned by anthropic released a new model and it was i never found out why the government shut it down but people are romanticizing it like when dr dre disappeared for years and years and years and didn't make music for so long like that's the kind of vibes people are having online over like how they miss this new model so much.

12:34Stephen:But when you, when you look at some of the, the ways the models, the model works now, it's, it's actually kind of impressive. The improvements, and I know this sounds like everything that every AI truther wants to say but like the improvements have seriously gotten more and more extreme and the models are getting better and better but but i also believe you still have this limiting fundamentally limiting um constraint for ai where and from what i've noticed it's really good if you're a beginner at something that giving you like doing like entry level kind of things. Like I was trying to learn about a topic, a specific part of the business world that I knew nothing about.

13:26And so the AI just on Gemini, the AI was just pumping out all this information.

13:30Stephen:And I was like, this is eyeopening. Like I never knew that this was this and this was that. But if I were to do the same type of conversation about the stock market, I would say, well, yeah, this is all obvious information. And then if I try to go deeper, the technology still hasn't been there where you go deep enough and let's look at the stock market or accounting or valuation. The model's not nearly there yet. It's not good enough. People call it hallucinations, but it's sometimes hilariously inaccurate. it and so i don't know if that if that gap ever gets filled if if it's able to go from like really smart sounding beginner into like a nuanced a new a more nuanced um solution for people but the improvements in in the fable they were showing some of the games that were made like i think you kind of with your time spent gaming i think you'd be impressed with what was built just on a single prompt using fable as a game um it's certainly something i'd never be able to build i don't i don't make games obviously but like it looks close to uh there's one example look close to like a console type game but apparently only needed a few prompts so like they're training with better engineering they talk about like garbage in garbage out so the the inputs are that they're investing in are getting better and better and better but i'm still skeptical to like what do the final outputs look like i mean that's all fair and And at the end of the day, like we don't know.

15:19It's that's a hard. It's a hard question to answer. But I mean, we just have to look at the companies we're talking about and decide whether or not, at least for me, decide whether or not I have faith in their ability to. Find a way to to make make it valuable, I guess. and i don't see just seeing how far it's come in the past couple of years i don't see how it couldn't but i mean looking looking at the mag 7 for 2026 um alphabet is up 11.3 percent nvidia is up 12 percent uh you already said alphabet my bad apple is up 9.5 percent amazon 0.9 percent Now, Tesla, they're down almost 10%. Meta is down 14.4%, and Microsoft is down 23.7%.

16:24So, I mean, again, I just, like, looking at that, it's like, okay, Microsoft, they're down 23%. Am I worried about Microsoft? No, it's Microsoft. Like, it's like, are you worried about Coke? no it's coke it's not going anywhere um eventually it might but but it's still too strong right now i think does that mean it's a great investment no um at least not right now but to me it just says like everything everything's fine and they're just trying to build hype a whole lot of hype over nothing. And like you said, that's very interesting. And I've never put two and two together that it might just be a hype, you know, the hype man for the up and coming IPOs.

17:19You know, a concert comes to town, you got a hype man going around talking about it. They used to back in the day, you had a hype man going around talking about the concert come to town. Maybe that's what's going on. But if that's the case, is fear mongering the best way to go?

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19:52Stephen:Download my ebook for free at stockmarketpdf.com. Are you concerned about the volatility with some of the smaller names, like the semiconductor? You know, in the past 12 to 24 months, subscribers of iSpotlight have bought a few AI tied names. Like at first it was the Mag7. And then after that, people were starting to look downstream. So it was, you know, the smaller semiconductor names after NVIDIA had already been bid up to its massive heights. So it's like your ASMLs, your Applied Materials, Texas Instruments, all of those in the past week or so. And I've watched because I'm one of those people who does what you shouldn't.

20:40Stephen:And I'm looking every day. But those stocks are like down 9%, up 10%, down 9%. And today I think Applied was up 10%. So does that kind of volatility worry you, especially like if the big companies are fine and they're just very boring? And like you just said, the Mac 7 is pretty stable right now. But then you have these other AI theme names being super volatile. Where does that put your headspace at? Nowhere, really. I mean, it's fine. The only thing that would concern me is if those start disappearing, because then you're going to have one or two giants running the entire industry, which is, you know, almost a monopoly.

21:28And nothing ever good comes from, I can't remember the term for it. It's like a pseudo monopoly. It's not quite a monopoly, but it's almost there. And nothing in history good has ever come from when a couple of big companies get to that point. um at least i can't think of one i could totally be wrong and i i'm sure somebody's gonna be like well pepsi and coke but stop it um i guess more estate have you been to the biltmore estate i

21:58Stephen:have been to the biltmore estate so doesn't that count as a a benefit to humanity the biltmore estate yeah how would how is that a benefit to you man like no one even lives there anymore it's just a museum as a rich guy it's gorgeous but it's it's it's it's it's it's waste them look if you've never been to the biltmore estate which is a nashville north carolina i highly recommend you shell out the cash and go check it check it out because the grounds are absolutely beautiful the house on i think the house on the outside is beautiful and once you get inside, I think it's meh. It's pretty mid. But the grounds are absolutely insanely gorgeous.

22:45Highly recommend you you try it out. They have an amazing winery there. If you like wine, that's really cool. But no, like, other than that, I see absolutely no value in it at all. There's just a rich railroad tycoon's house. And I mean, like well what does that even have to do with what i'm talking about you it's being difficult um but no i don't think it puts the only time i like i said the only time i would worry is if those those start to disappear and because the that's the one thing we i don't want is for NVIDIA to start swallowing them up. I know that happens on a small scale anyway, which is fine.

23:38But I think if what you're talking about turns into that large scale where they just can't stay competitive and they start disappearing, that's because then every prices are going to get outrageous and control and get outrageous. And so, I mean, competition is always good. Did that answer your question? I don't even remember what your question was now.

23:58Stephen:Well, you were looking at AMD before we got on the air, and they'd compete directly against NVIDIA. So I think that's one of those interesting, and I think this makes for good educational content. So for once, for this episode, we'll do something educational. um amd and nvidia one's been really really volatile the other one like you said has been pretty stable what's the difference between the two of them other than amd is small and nvidia is big uh one thing i would posit is amd's price earnings ratio right now is 173 uh now they do have a forward p of like 40 so it looks like they're growing into that multiple somewhat but one of the things that we can't forget which people always forget and um i almost laugh in a way that's it never ceases to amaze me how much people forget that like high valuation high gross stock means a lot of downside on the way down so um when that kind of stuff happens another company that's an example of that, Palantir.

25:11Stephen:They are down 44 % in six months. So there's another company like when a stock is priced to perfection, any little hint of change in the sentiment, hint of change in the hype, hint of change in any sort of future threat, those stocks can come down quite a bit and it makes playing in the super high growth areas really really difficult because you're gonna have these huge whiplash moments

25:52that's really interesting because the other day you were talking about you know be careful when you look at a pe um it can be different depending on where you look so I don't know where you're looking. I had a pulled up on Yahoo Finance, which I never use, but that's where Google took me this time. So fine. But on Yahoo Finance, their PE is 175. So just pointing that out, like, because I remember you bringing that fact up the other day. So this is a prime example of the PE being different. Not that it makes that big of a difference in this case, but it could depending on if it's a different stock and it's a big difference in the PE.

26:35Anyway, teachable moment since that's what we're doing today. No, I'm kidding. Yeah, AMD. But AMD is not even hurting that bad, Andrew. Like, yeah, they're down a little bit. But they were specifically named in those articles as being hit hard. and you know i i did the math i think it was what 12 or something like that that they're down total like it's not that bad for amd as well huh amd as well that's what i'm talking about amd yeah so i mean um i mean does amd be down being down 13 really worry you I mean, I don't think it's that big of a deal. And I don't know. It's a whole lot of hype over nothing.

27:27Tech rot.

27:30Stephen:That's like my brain on Instagram. That's exactly what it's like. And there are also a lot of other factors we have to think about, too, because I don't remember who was talking about it. Yeah. Oh, man. Somebody was talking about the Fed's probably going to raise interest rates again towards the end of the year. That has a huge effect on this because that lowers their long term projection, because when they project their cash, you know, five years from now. That's a direct impact on their cash today. Or their valuation today. So, I mean, you know, that could be playing into it. there are so many factors that can be playing into their price.

28:22And maybe investors finally just like, hey, you know what, AMD, you're not worth$500 anymore. I'm sorry, maybe you're worth$400 now. And it'll go down to that at a level off and it'll stay there for a few years until AMD does something great and it goes back up. There are so many factors that can cause a stock to go down. And, Andrew, is there anything that you saw when you were looking at it that might say, like, this is the signal that they're going to go down for a while, but then maybe go back up or level off?

28:59Stephen:Well, you hit the nail on the head, and I think it's worth repeating. when people talk about the Fed and like, what's going to happen with interest rates or what's going to happen with inflation or these bigger picture ideas around interest rates. And those things affect growth stocks way more than they affect like a value stock or even just a fairly priced stock. Because like you were saying, you take an expensive growth company, investors are looking way out into the future and so their valuation models if you even want to call them that really get swung up or down based on what the Fed does do and and so if you don't like being subject to those forces which can seem like they're out of your control because they probably are then you should probably stay away from the hype the growth the growth the momentum all of those things have always been subject to this.

30:02Stephen:And in 2020, 2021, it was a lot of the names that I mentioned already and other growthy growth names. And so, yeah, some of the growthy growth names do grow out and become some of the best investments you'll ever see. But a lot of them, in the meantime, you deal with a ton of volatility and you deal with what feels like random gusts of win that knock a stock over and topple it. And then if that starts to start like a pessimistic viewpoint around a company, then all you need is a couple of those opinions that get attached to a name and then it really unravels. I don't say it to like beat up on people who are excited about the stock or may have bought the stock.