Tech Stocks: Analyst Warns the Worst Is Yet to Come for Internet Stocks

Tech StocksTech stocks had a great run last year, led by companies in the Internet business. But things changed rather quickly in 2016, with many once-hot companies struggling in the red. And according to a leading analyst at JPMorgan Chase & Co. (NYSE:JPM), the worst is yet to come for Internet stocks.

Marko Kolanovic is the global head of derivative and quantitative strategies at JPMorgan. On Monday, he told CNBC that the Internet bubble is bursting. (Source: “Internet Bubble is Bursting: JPMorgan’s Kolanovic,” CNBC, February 9, 2016.)

“We are now down more than 20% on average on some of these names. So you can even say it’s in a bear market in that specific niche,” said the analyst. “I wouldn’t be surprised if it gets to 30% to 35%, cumulative.”

So, after the terrible start in 2016, some Internet stocks might see another double-digit decline.

Kolanovic considered valuations in certain tech areas high in historical terms. These sectors include Internet, online retail, and software.

Several stocks in those sectors have benefited from momentum investing in the last few years. The analyst is worried that as the volatility of these stocks increases, investors might pull their money out.

To give you an idea on how big of a decline the Internet sector is going through, here are some popular names. Netflix, Inc. (NASDAQ:NFLX) stock plunged 26.2% since entering 2016, while, Inc. (NASDAQ:AMZN) stock has lost nearly 30%.

Note that Kolanovic has become a highly followed analyst by hedge funds. He correctly predicted the stock market downturn last August. (Source: “It’s Marko Kolanovic’s Market, We Just Trade in It,” Bloomberg, September 25, 2015.)

So, if some of the hot names in the Internet business are looking a bit shaky, where should investors put their money?

Well, according to Kolanovic, gold, energy, and emerging markets could have solid upside potential.