SMCI, CRWD among top S&P 500 Information Technology losers in Q3

The Technology Select Sector SPDR Fund ETF (NYSEARCA:XLK), which tracks S&P 500’s information technology sector, lost 0.96% during the third quarter, compared to a 5.25% rise in the broader S&P500 Index.

The Information Technology sector, which consists of stocks such as Nvidia (NVDA), Palantir (PLTR), Super Micro (SMCI), and CrowdStrike (CRWD) was the only S&P500 sector, besides the Energy sector which lost in the third quarter, compared to gains posted by all the other nine sectors.

Super Micro (SMCI), CrowdStrike (CRWD), and Intel (INTC) were the top losers in the S&P 500 IT Index during the quarter, dragging the entire sector. Super Micro Computer (SMCI) has fallen the most this quarter, after short-seller Hindenburg Research in August alleged “accounting manipulation” at the AI server maker.

Super Micro (SMCI) delayed filing its annual report, citing a need to assess “its internal controls over financial reporting,” a day after Hindenburg disclosed a short position in the company. To add to its troubles, the company is now being investigated by the U.S. Justice Department regarding accounting violations, according to a WSJ report last week.

CrowdStrike (CRWD) also had a turbulent quarter, after a faulty update from the cybersecurity company led to a global IT outage. The outage resulted in the “blue screen of death” for computers running Microsoft (MSFT) Windows and causing a number of airlines to be grounded, and impacted financial services, health care and several other industries.

Another major loser in the Technology sector, Intel (INTC) has been struggling to turn around its business amid dwindling profits and fierce competition.

Industries Third Quarter performance:

The Software and Services sector fell 1.24% in the third quarter. The Technology, Hardware, and Equipment segment grew 6.92% during the quarter, while Semiconductors and Semiconductor equipment industry fell 3.28% in the last three months.

U.S. stock fund flow in and out of the sector was average throughout the third quarter. The information technology sector-focused ETF (XLK) had a net outflow of -$51.8M as of September 26.

Top 5 performers for Q3:

• Palantir (PLTR) +41.02%

• F5 (FFIV) +27.43%

• Fair Isaac Corporation (FICO) +25.68%

• Fortinet (FTNT) +25.49

• IBM (IBM) +23.47%

Bottom 5 performers of Q3:

• Super Micro Computers (SMCI) -50.88%

• CrowdStrike (CRWD) – 28.34%

• Intel (INTC) – 26.99%

• Lam Research Corp (LRCX) -26.08%

• Micron (MU) -24.49%

What Quantitative Measures say?

XLK received a Buy rating from Seeking Alpha’s Quant Rating system, with a score of 4.26 out of 5. The sector got an A+ for liquidity, an A for expenses and momentum, and a B+ for dividends. However, it was given a D+ in the prospect of risk.

What do analysts expect?

Out of the four analysts surveyed by Seeking Alpha in the last 90 days, one recommended Strong Buy, two recommended Buy, one recommended Hold, and none of them recommended Sell.

Seeking Alpha analyst Josh Arnold pointed out that technology stocks led the 2024 rally but have since declined sharply, with XLK’s performance suffering in part due to heavy reliance on Microsoft and NVIDIA.

However, Arnold believes XLK’s seasonality is weak in September, but historically strong in October and November, suggesting a potential year-end rally after further declines.

“Patience is key; wait for Microsoft and NVIDIA to form sustainable bottoms before buying XLK,” Arnold added.