Massive, pandemic-led, tech spending by enterprises is gradually declining. Moreover, the industry is currently grappling with supply chain disruptions and semiconductor chip shortages. So, given these industry headwinds, we think it is best to avoid fundamentally weak tech stocks Pegasystems (NASDAQ:PEGA) and Plexus (NASDAQ:PLXS), which missed earnings estimates in their last reported quarter. Read on.The heightened tech spending by enterprises for more than a year in response to imperatives created by the COVID-19 pandemic is gradually declining. Also, supply-chain disruptions and a prolonged semiconductor shortage are marring the industry’s growth. “I think numbers will be solid but won’t show that exponential growth that we saw over the last few quarters,” said Maribel Lopez, principal analyst at Lopez Research. S&P 500 tech companies are expected to report 29% year-over-year earnings growth in the third quarter, a marked slowdown versus the second quarter’s 48% growth.
The semiconductor chip shortage is hamstringing the production of electronics and restraining the production capabilities of several companies in this space. And the industry is expected to remain hampered by the chip shortage and supply and logistical challenges until 2022.
So, given these headwinds, we think fundamentally weak tech stocks Pegasystems Inc . (PEGA) and Plexus Corp . (PLXS), which have missed earnings estimates in their last reported quarter, are best avoided now.