Tough times for U.S. tech firms as once soaring stocks return to earth

WASHINGTON, June 8 (Xinhua) -- Times are tough for U.S. tech firms. And it remains unclear whether there will be a light at the end of what could be a long, dark tunnel.

After soaring pandemic-era stock valuations, share prices of once red-hot stocks have tumbled, amid rising U.S. interest rates that have shut off the easy money valve.

The bear market has been harsh for many tech companies that went public during the pandemic, when that sector's stock valuations were surging. Some companies have even lost up to 75 percent of their share value in recent months.

Things could get worse before they get better, some economists said.

"It seems that there could still be more bloodletting" if the economy succumbs to a recession, as the U.S. Federal Reserve tries to rein in inflation, Desmond Lachman, resident fellow at the American Enterprise Institute and a former official at the International Monetary Fund, told Xinhua.

The tech companies that will survive will be those that have strong balances and cash reserves to withstand the recessionary environment, Lachman said.

Indeed, some economists are predicting a recession will occur as a result of Fed rate hikes meant to tame interest rates. If that happens, tech stocks could fall even further, some experts said.

That's a sharp contrast from the tech investment environment just a few months ago, when tech startups were indulging in a moment of growth no matter how much cash they had to burn through, assuming that they would go public and eventually become profitable.

Now the environment has turned on its head. It's no longer the tech companies with the best, most innovative products that will survive. The name of the game now is cash, experts said.

In a virtual call, venture capital firm Craft Ventures' main message for companies that need to raise financing in the next two years was to prioritize saving cash over growth, U.S. newspaper Axios reported, noting that this is a major change.

"If growing 3x means you will have only 12 months of runway, but you can extend runway to 24+ months by only growing 2x YOY (year-over-year), I would strongly encourage the latter," said Craft Ventures General Partner Jeff Fluhr, as reported by Axios.

Meanwhile, tech stocks continue to fall, and the tech-heavy Nasdaq has lost 23 percent of its value over the past six months.

More than 80 percent of tech initial public offerings (IPOs) of at least 500 million U.S. dollars that went public since March 2020 are trading below their IPO price, according to Bloomberg.

Some of the hardest-hit companies are those that saw the most media fanfare upon their debut. Later stage startups are also feeling the sting, as are smaller ventures, and this year is expected to see the lowest number of IPOs in the last six years.

Investors in Silicon Valley are in a sour mood, and their sentiment is the most negative since the dot-come boom and bust two decades ago, posted PayPal co-founder David Sacks, who is now a partner at Craft Ventures.

Indeed, U.S. media are making comparisons between the dot-com crash of the early 2000s and the current tech bubble.

During both booms, investors poured truckloads of cash into so-called "story stocks" -- shares of companies that had not yet turned a profit, while investors strongly believed would pay off handsomely down the road.

But between March 2000 and October 2001, the Nasdaq-100 took a nosedive of over 70 percent, causing several media favorites to shutter.

A dot-come rise and fall story is Priceline, an online travel booking company that was written about extensively in the early 2000s.

Shares of the once vaunted tech company surged from the 96 dollar (stock split adjusted) IPO price to around 1,000 dollars. But when the market took a dive, the stock hit a low of 6.60 dollars in October 2002.