5 Tech Stocks to Avoid As Inflation Heats Up

3. Zoom Video Communications, Inc. (NASDAQ:ZM)

Number of Hedge Fund Holders: 44    

Loss in Share Price Year-to-Date as of September 21: 58%

Zoom Video Communications, Inc. (NASDAQ:ZM) provides a unified communications platform worldwide. On August 22, the company posted earnings for the second quarter of 2022, reporting earnings per share of $1.05, beating market estimates by $0.12. The revenue over the period was $1.1 billion, up over 7% compared to the revenue over the same period last year and missing analyst estimates by $20 million. The firm said the total revenue for 2022 was expected to be between $1.095 billion and $1.100 billion, versus estimates of $1.15 billion.

On September 12, KeyBanc analyst Thomas Blakey initiated coverage of Zoom Video Communications, Inc. (NASDAQ:ZM) stock with a Sector Weight rating and no price target, noting the firm was well-positioned to gain share in the phone space. 

At the end of the second quarter of 2022, 44 hedge funds in the database of Insider Monkey held stakes worth $2.96 billion in Zoom Video Communications, Inc. (NASDAQ:ZM), compared to 43 in the previous quarter worth $3.2 billion.

In its Q1 2022 investor letter, Horos Asset Management, an asset management firm, highlighted a few stocks and Zoom Video Communications, Inc. (NASDAQ:ZM) was one of them. Here is what the fund said:

“What about the other asset class that has attracted the most attention from the investment community in recent times? Here we can distinguish three major groups. First, those companies without earnings that had convinced investors of their great future growth prospects, pushing up their valuations to irrational levels. A clear example of this, which we mentioned almost two years ago (see here) is Zoom Video Communications, Inc. (NASDAQ:ZM) (“Zoom”), whose market cap exceeded that of companies such as IBM or came close to that of Cisco Systems. Well, from the time we wrote about this odd situation until today, Zoom shares have collapsed nearly 80%.

Therefore, if interest rates rise (or are expected to rise), company valuations are negatively impacted. This is especially true for those businesses that generate little cash today and the market expects them to generate a lot of cash in the future. Hence the severe losses in companies that promised a lot of cash generation in the future (such as Zoom).”