One Risk You Might Be Missing in Tech Stocks

Editor's note: The biggest risk in technology investing isn't competition, disruption, or even valuation. It's something far more fundamental – and most folks never think about it. According to Extreme Value editor Dan Ferris, one bond market concept could help explain why today's hottest stocks are more vulnerable than they appear...

If you don't like long-term bonds, you should hate technology stocks...

This probably sounds absurd.

One is considered among the safest investments in the world. The other is known for innovation, growth, and big price moves.

But the two are more alike than most investors realize.

The connection comes down to a concept called duration.

Most investors think duration only applies to bonds. Yet it plays a major role in the way stocks behave, especially technology stocks.

And because they don't understand duration, too many investors are underestimating the risks hiding inside their portfolios today.

Let's start by looking at a 30-year U.S. Treasury bond...

If you buy a 30-year Treasury bond, you can count on the government to pay your promised 5% interest every year... then return your principal in 2056.

But that safety doesn't free you from volatility.

A 30-year Treasury bond can still suffer large price declines when interest rates rise. That's because investors must wait decades to receive all the cash flows the bond promises.

Rates and yields move together... But bond prices and yields travel in opposite directions. So when yields rise on newly issued bonds, that drives down the prices of old bonds. And when yields fall, bond prices rise.

The following chart shows a rolling 30-year Treasury futures index. As you can see, the chart contains no less than five double-digit declines – in the value of a U.S. government bond...

The volatility of this super-safe asset is due to duration.

Three decades is a long time in the life of a human, so we refer to a 30-year bond as a long-duration asset. And with these assets, a small change in interest rates can add up to a lot of money over 30 years... So prices can react with big swings up and down.

Now let's translate all this to stocks...

The Duration Problem in Tech Stocks

Unlike bonds, stocks never mature. Investors buy them because they expect future earnings to grow over time. They can generate returns for decades on end.

So, stocks are very long-duration assets. But not all stocks are the same.

Consider a real estate investment trust ("REIT") yielding 5%. If the REIT's payouts hold steady, you'll recoup your entire investment in 20 years. But a good REIT will raise its dividend over time, so you won't have to wait that long to earn your initial investment back.

Tech stocks are different...

Many tech companies are unprofitable. And they might keep losing money for years. That means more time before investors get the rewards they're looking for.

That's what duration really measures: how far into the future you have to trust the story to get the payoff.

In other words, tech stocks are sensitive to interest rates for the same reason as that 30-year bond.

Tech innovators experiment, engineer, develop, and test, sometimes for years. But their innovations may not work out, or may never catch on.

Tesla (TSLA) is a good example...

Founder Elon Musk has spent more than a decade developing fully autonomous self-driving cars. He continues to tout his robotaxis as a multitrillion-dollar opportunity.

But today, only about 25 of these vehicles are in operation across a handful of cities.

If robotaxis are a trillion-dollar business, those profits still sit far in the future. In other words, if you're buying Tesla shares, you shouldn't be paying anything for the robotaxi operation. It's a pure promise right now, not a real business.

Even successful products don't always translate into successful investments...

Consider Peloton Interactive (PTON). It created an exercise bike with a screen hooked up to the Internet. Consumers loved it. But the business is struggling for survival, and the stock has been a disaster.

Peloton went public in September 2019 at $29 a share. By January 2021, the stock was up more than 470% to $167. But today, it trades at about $6 a share.

Peloton touted itself as a tech company. The market treated it like one, and it has behaved like one all along: The payout is still far in the future (if it ever arrives), and the stock has been insanely volatile.

This is the true nature of tech stocks. No matter how well they perform in the short term, they remain perhaps the longest-duration and riskiest sector in the market.

Now, let's add interest rates back into the picture...

Why This Risk Matters Right Now

Bank of America's May 2026 fund-manager survey showed a record surge in allocation to equities, "driven ​by optimism over earnings growth and by the ‌possibility of the Federal Reserve cutting rates."

Too many investors are pinning their hopes on those rate cuts.

Bond values rise as interest rates fall... and fall as interest rates rise. Likewise, a small change in rates dramatically changes the value of tech earnings that may not show up for decades.

You saw it plain as day in 2022, when Amazon (AMZN) and Nvidia (NVDA) both fell roughly 50%. They're two of the top cash-gushers in tech. But rates soared, and these stocks plummeted.

It was just duration arithmetic playing out in the stock market.

I'm not arguing that you should avoid technology altogether. But you should understand what you're buying.

Tech investors today think they're betting on innovation producing great wealth. And to an extent, they are. But they're also making a second bet... that inflation will stay under control and interest rates will remain favorable.

Most investors never think about that part.

Today, stocks – mostly tech stocks – are all people want to own. Just remember, tech is more than a pure bet on innovation...

And the further out your payoff sits in the future, the more risk you're taking today.

Good investing,

Dan Ferris

Editor's note: Wall Street's most influential investors are already preparing for a potential financial shift on July 4. Dan believes the move could reshape markets, currencies, and investors' portfolios for years to come. That's why he's urging readers to understand what could be the "biggest trade of all time" before it becomes front-page news.