On Tuesday, 14 December, adobe stock, Zscaler, Cloudflare and other cloud companies fell after that, as J. P. Morgan in the forecast report for 2022 lowered their ratings.
Waiting for rates to rise
“Reasons for the rating change include limited upside potential for shares, possible increase in interest rates in 2022 and reassessment of future cash flows”, the bank said.
Possible tightening of monetary policy puts pressure on technology companies for several weeks. Index Nasdaq over the past month has already fallen by 5% from the maximum in November.
American regulator, given high inflation, may announce a policy change in the evening 15 December after meeting. Markets await, what FED will begin to cut back on its bond buying program faster.
Cutting Incentives And Subsequent Rate Hikes Will Lead To Higher Yields On Bonds. As a result, the risk premium for owning overvalued tech companies will decrease.. As rates rise, the future cash flows of such companies will also become smaller..
“Rising stakes are being made by technology companies, which are worth more 20 annual proceeds, more risky ", - added to J. P. Morgan.
Little growth potential
Investment Bank downgrades Adobe from Buy to Neutral, after which the shares fell by 7%, to 615 $.
Until the recent fall of Adobe, it cost 21 annual revenue, and the shares were trading at 658 $. It's on 31% above, than at the beginning of the year, and on 3% below the bank's goal in 680 $.
“This year Adobe was one of the best in our coverage, especially in the large cap category, because the pandemic has prompted its customers to spend more on digital marketing and advertising. Now the share price is less than 10% from our target price, and therefore we are downgrading the rating to neutral.”, — analysts explained J. P. Morgan.
At the end of this week, Adobe will publish a financial report for the fourth quarter. According to analysts and the company itself, sales will grow by 19%, up to $4.1 billion.
Cybersecurity companies Zscaler and Cloudflare also fell by 8 And 9%. From the beginning of 2021 until yesterday's fall, they grew by 55 And 91%. Companies were rated in 56 And 84 annual revenues.
The Fed wants to fight inflation, which means, rate hike cycle is near. We believe, that it will really affect expensive companies”, — explained in J. P. Morgan Downgrades Zscaler to Sell.
The bank downgraded Cloudflare to the same level: “This is the most valuable company of all, what do we cover. We are thinking, that the estimates of software developers will fall over time".
