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Why did the Zoom stock spike up 11% on Wednesday?

Zoom outperformed the wider tech sector on Wednesday, soaring over 11% to close at US$390.

Zoom stock price: What’s the latest?

The Zoom Video Communications (NASDAQ: ZM) stock soared as much as 11.5% on Wednesday 10 September 2020, signalling an end to the recent tech sell-off.

Shares rose to an intraday high US$394.80 on the IG platform towards the close of day.

Zoom’s double-digit rally outperformed both the wider tech sector – Nasdaq-100 Technology Sector index closed the day 2.34% higher, as well as the overall market (S&P 500: +2.01%; Dow Jones: +1.6%; and Nasdaq 100: +2.96%).

IG's client analysis shows that ‘sells’ (short positions) form 51% of all Zoom trades so far this week.

Additionally, 89% of all opened positions on Zoom are currently 'long', indicating an expectation for price to increase.

Why did Zoom fall 21% a day after hitting all-time high?

Between Thursday (03 September 2020) and Tuesday (09 September 2020), Zoom saw its share price plunge as much as 21%, as the market went into correction mode on tech companies just ahead of the long Labour Day weekend.

Electric car manufacturer Tesla, often described as more of a tech company than an automobile maker, appeared to have triggered the shorting momentum, with investors selling off stocks as early as last Tuesday 01 September.

Tesla, whose shares were up as much as 430% earlier this year, saw its stock crash over 40% during this four-day sell-off.

On the other hand, Zoom shares had just hit an all-time peak price of US$462 on the same day that Tesla’s correction began.

As previously reported, the Zoom stock opened 44% higher last week after its second quarter revenue and earnings per share smashed Wall Street estimates by 33% and 104% respectively.

Ready to trade Zoom Video Communications?

CFDs allow you to buy (long) or sell (short) Zoom shares without trading the underlying asset. Open a live or demo account with IG now.

What is the latest broker outlook for Zoom?

The Zoom stock has a 12-month target price of US$394.34 from 21 analysts polled by Bloomberg, as of 10 September 2020.

This represents an estimated return potential of 1.2% from the last traded price.

Fourteen analysts have also rated the stock a ‘hold’, versus 12 on ‘buy’.

BTIG equity researchers last week upgraded their rating on Zoom to a ‘buy’ from ‘neutral’ on a target price of S$500 a share (representing a 28% upside).

Their bullish outlook is based on how the company ‘reported another quarter from a different planet again, far outpacing its peers in the UCaaS (unified communications as a service) space’.

‘So we are jumping into the deep end after its back-to-back monstrous quarters, as we believe that global widespread adoption is still in the early stages,’ the analysts wrote, adding that they have ‘greater conviction in Zoom’s ability to capitalise on both near- and long-term opportunities’.

Meanwhile, JP Morgan’s price case is more grounded at US$425 a share and a rating of ‘overweight’.

While the July-ending quarter was ‘truly impressive and in some ways unprecedented’, analysts also highlighted that customers with less than 10 employees (a group that has a much higher churn rate) reached 36% of total revenue in the quarter.

They warned that there is a potential risk of a pull-back in revenue once Covid-10 dissipates.

Nevertheless, those results have prompted Zoom’s management to raise its revenue guidance for the full 2021 fiscal year by 30%.

How to trade US tech stocks with IG

Are you feeling bullish or bearish on Zoom and other US tech stocks?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's world-leading trading platform in a few easy steps:

  1. Create a live or demo IG Trading Account, or log in to your existing account
  2. Enter <Zoom Video Communications Inc> in the search bar and select the instrument
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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