What happened
If there is a single watchword that defines 2022, it would be inflation. Consumers and investors alike have been looking for signs that rising prices will eventually ease.
When the latest government report on inflation hit the wire Tuesday morning, it revealed that while prices weren’t increasing as quickly as they had been, the news was still worse than expected, sparking a wide-ranging sell-off on Wall Street.
With that as a backdrop, shares of Nvidia (NVDA -7.49%) tumbled as much as 7.8%, Amazon (AMZN -5.28%) slumped as much as 6%, and Apple (AAPL -4.62%) slipped as much as 4.5%. As of 12:45 p.m. ET, the trio were still trading lower, down 7.5%, 5.1%, and 4.2%, respectively.
To be clear, there was little in the way of company-specific news driving these technology stocks lower — and what could be found was decidedly positive. This suggests that investors were hyperfocused on the macroeconomic data and what it means for the future.
So what
The monthly report from the U.S. Bureau of Labor Statistics laid out the state of inflation during the month of August, and things were even worse than many expected. The Consumer Price Index (CPI), the most widely followed government measure of inflation, increased 0.1% for the month and rose 8.3% year over year.
To give this number context, it’s lower than the 8.5% that prices increased in July. Unfortunately it was also worse than the 8.1% forecast issued by economists. The “core” data, which strips out highly volatile food and energy prices, still climbed a miserable 6.3% over the preceding 12 months.
If there was a silver lining in the cloudy inflation data, it was that energy prices continued to ease off recent highs, declining 5% for the month. The biggest contributor to the drop was lower prices at the pump, as the gasoline index fell by a hefty 10.6%.
The declines were more than offset by increases in many basic necessities, including higher food prices, which notched an 11.4% increase year over year, the largest yearly increase since 1979.
Now what
The persistent inflation is weighing on investor sentiment, but even as this dreary macroeconomic data gave them pause, there is actually some positive company-specific data that suggests investors should actually consider buying these stocks.
Reports suggest that Nvidia and Taiwan Semiconductor Manufacturing are working on a solution that would daisy-chain multiple graphics processing units (GPU) together in a new way, which would be deployed for artificial intelligence (AI) uses. This could help fuel Nvidia’s sales, as the company has been increasingly focused on technology used in cloud computing, data centers, and AI, which has quickly become one of the company’s biggest growth engines.
In the case of Apple, early presale data for the iPhone 14 suggests robust demand. Over the past couple of days, various analysts tracking the data have reported that wait times are growing for the iconic device. History suggests that longer ship times correlate with strong demand.
Early Tuesday, noted Apple follower Evercore ISI analyst Amit Daryanani joined that chorus, noting that lead times are long, particularly for the iPhone 14 Pro, Pro Max, and Plus models, according to The Fly. The data suggests that consumers are opting for these higher-priced models, which could have a materially positive impact on the average selling price (ASP) of iPhones — and Apple’s margins.
For its part, Amazon announced the debut of the latest model of its Kindle e-reader. The entry-level model, which the company calls its “lightest and most compact,” comes with numerous upgrades, providing a tempting alternative for users looking to join the digital reading crowd or replace an existing e-reader.
Electronic devices represent just a small part of Amazon’s business, so it certainly won’t move the needle. That said, it helps make Amazon’s ecosystem stickier, attracting new customers and hanging on to existing ones.
In the face of the ongoing Nasdaq bear market, shares of Nvidia, Amazon, and Apple are currently trading down 60%, 30%, and 14% off their respective highs. Furthermore, these industry leaders are currently selling at 10, 6, and 2 times next years’ sales, respectively, each near their lowest valuations in several years. Given that they dominate their respective industries and have a long track record of overcoming challenges — macroeconomic and otherwise — this might be a great opportunity to buy shares of these iconic companies at a discount.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Amazon, Apple, and Nvidia. The Motley Fool has positions in and recommends Amazon, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
