Tech earnings could be in for ‘startling’ decline next 12 months, analyst warns

One of tech’s most influential analysts has gazed into his crystal ball, and doesn’t like what he sees for tech earnings this quarter and beyond.

AB Bernstein’s Toni Sacconaghi warns “risk is increasing in tech, especially with high-priced stocks” because of stratospheric valuations — the sector is trading at 21.4 times forward earnings, its highest level in 15 years — and predictions of a “startling” decline in earnings the next 12 months.

“Overall earnings growth is expected to be double-digit negative for Semiconductors and Tech Services,” Sacconaghi wrote in a Monday note to clients. He highlighted that seven of the 17 largest-cap tech companies have flat to negative forward earnings growth.

Indeed, tech sector revenue, punctured by tax reform, is expected to grow just 0.5%, badly lagging a 4.7% gain in sales for the broader market, Sacconaghi cautioned. Earnings, meanwhile, could plunge by 990 basis points on an equal weighted basis in the next 12 months — significantly higher than the market’s 130 basis points decline, he said.

Still, Sacconaghi isn’t ready to write off tech entirely. He sees value in tech stocks with relatively cheap valuations such as Dell Technologies Inc. DELL, -2.11% and Applied Materials Inc. AMAT, -1.61%

“While collective valuations are high, fundamentals for tech remain strong,” Sacconaghi said, pointing to above average five-year growth expectations.

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