What Happened?
A number of stocks fell in the morning session after investors took some profits off the table as markets awaited signals on future monetary policy from the Federal Reserve's Jackson Hole symposium later in the week.
The downturn in the market was largely attributed to a significant sell-off in megacap tech and chipmaker shares. Nvidia, Advanced Micro Devices (AMD), and Broadcom all saw notable drops, dragging down the VanEck Semiconductor ETF. Other major tech-related companies like Tesla, Meta Platforms, and Netflix were also under pressure. A key reason for this trend is that much of the recent market gains have been concentrated in the "AI trade," which includes these large technology and semiconductor companies. So this could also mean that some investors are locking in some gains ahead of more definitive feedback from the Fed.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Listing Management Software company Yext (NYSE: YEXT) fell 3.2%. Is now the time to buy Yext? Access our full analysis report here, it’s free.
- Marketing Software company Sprout Social (NASDAQ: SPT) fell 3.1%. Is now the time to buy Sprout Social? Access our full analysis report here, it’s free.
- Design Software company Unity (NYSE: U) fell 4%. Is now the time to buy Unity? Access our full analysis report here, it’s free.
- Lending Software company Upstart (NASDAQ: UPST) fell 5.3%. Is now the time to buy Upstart? Access our full analysis report here, it’s free.
- Advertising Software company AppLovin (NASDAQ: APP) fell 6.1%. Is now the time to buy AppLovin? Access our full analysis report here, it’s free.
Zooming In On AppLovin (APP)
AppLovin’s shares are extremely volatile and have had 59 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 5 days ago when the stock dropped 3.6% on the news that markets pulled back as a hotter-than-expected wholesale inflation report for July dampened hopes for a Federal Reserve interest rate cut. The U.S. Producer Price Index (PPI), a key measure of wholesale inflation, rose 0.9% month-over-month in July, far exceeding the 0.2% increase that economists had predicted. Annually, prices at the wholesale level jumped 3.3%, also surpassing the 2.5% forecast. This hotter-than-expected data has poured cold water on widespread expectations for an interest rate cut from the Federal Reserve next month. Persistent inflation makes it less likely for the central bank to ease monetary policy. Sectors with high-growth stocks, such as SaaS, are particularly sensitive to interest rate changes, as the prospect of higher rates for longer can diminish the present value of their future earnings, leading to a decline in stock prices.
AppLovin is up 20.6% since the beginning of the year, but at $412.33 per share, it is still trading 19.2% below its 52-week high of $510.13 from February 2025. Investors who bought $1,000 worth of AppLovin’s shares at the IPO in April 2021 would now be looking at an investment worth $6,324.
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