Why Many Cloud Computing Shares Plunged In Unison Today

What happened

A large number of cloud computing companies saw their stock prices slide today. Here's a handful of the best-known names included in this sudden slump:

Data taken from Google Finance at 3:07 p.m. EDT.

So what

The list above may look diverse, but these companies have a few things in common.

  • None of them reported any market-moving news Monday (nor did analysts push their share prices with fresh recommendations and target-price changes).
  • They all provide cloud-based computing services of various kinds, ranging from Slack's work-oriented messaging and Twilio's cloud-based voice communications platform to Okta's single sign-on tools and The Trade Desk's online advertising management.
  • They all trade in the rarefied air of high-growth market darlings. Shares of The Trade Desk can be bought for 112 times trailing earnings today, and Alteryx trades at 266 times earnings. The other four all posted negative earnings on a trailing basis. Their price-to-sales ratios start at 19 times trailing sales for Fastly, ranging all the way up to 33 times for Slack. To put that metric into perspective, more value-oriented tech stocks such as Apple or Cisco Systems can be had for less than four times their trailing sales.

Despite the lack of investable news, all of these stocks saw large trading volumes today. Alteryx and Slack moved nearly quadruple their average number of shares.

A young businessman at his desk, clutching his head and staring wide-eyed at his computer screen.

Image source: Getty Images.

Now what

Massive trading volumes on a no-news kind of day typically point to large investors making changes to their portfolios. If so, we'll see some proof in a couple of months when institutional investors post their 13F filings to the Securities and Exchange Commission. The large price moves also tend to amplify themselves as nervous investors take one look at the beating their high-priced stocks are taking, then head for the exits just in case it's the start of a much bigger drop.

Again, there's nothing fundamentally wrong going on in the cloud computing sector today. We're probably just watching a couple of very large holders moving out of these high valuations and into something safer. The cloud computing stocks above may stick to these lower (but still lofty) prices, or they might make a full recovery in the normal course of unpredictable market jitters.

Those are the breaks in the nosebleed section of Wall Street, where stocks are priced on their ability to grow quickly rather than on their solid financial performance. Volatility can be painful in the short term.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alteryx, Apple, Okta, Slack Technologies, The Trade Desk, and Twilio. The Motley Fool has the following options: short January 2020 $125 calls on The Trade Desk, long January 2020 $60 calls on The Trade Desk, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool recommends Fastly. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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