What happened

For the second day in a row, the Nasdaq is selling off hard, and looking like it may close the week on a down note. Shares of popular tech stocks were in free fall this morning, including videoconferencing star Zoom Video Communications (ZM -0.82%), cybersecurity specialist CrowdStrike (CRWD -3.90%), and e-signature company DocuSign (DOCU -2.35%), down 6.6%, 6.8%, and 11.8%, respectively, as of 10:15 a.m. EDT.

Perversely, all of this selling is coming in the face of what has to be considered great news.

Cartoon characters confused by stock chart arrow falling and crashing into floor

Image source: Getty Images.

So what

Let's begin with Zoom. Three days ago, it reported smashing Q2 2020 earnings results including a 355% rise in quarterly revenue, and predicted a stunning 284% increase in sales for the full year. Investors initially hailed the news, sending Zoom stock up more than 40% on the day that earnings were reported. But now they're selling.

Then yesterday, we got a doubleheader of good tech news. First, CrowdStrike reported its results: Revenue was $199 million, well ahead of consensus estimates for $188.5 million in Q2 sales. Earnings were $0.03 per share, versus the $0.01 per share loss that analysts had forecast.

Likewise at DocuSign, where revenue of $342.2 million outstripped expectations for $318.6 million in Q2 sales, while pro forma earnings came in at a strong $0.17 per share, twice the expected $0.08.    

And like Zoom before them, CrowdStrike and DocuSign gave strong guidance as well. Instead of the loss of $0.05 per share and $195.6 million in sales that Wall Street predicts for Q3, CrowdStrike says it could do as much as $215 million in sales -- and maybe break even (and definitely turn profitable in 2021). Similarly, DocuSign says Q3 revenue will be at least $358 million, well ahead of the $335 million Wall Street expects.

Now what

What's not to like in all of that?

I'll let Deutsche Bank tell you, in a downgrade announced this morning on DocuSign stock: Yes, DocuSign beat earnings in Q2, and Deutsche Bank agrees that there's probably no danger of a slowdown for the e-signature company, which TheFly.com reports is a "clear beneficiary" of a large chunk of the economy moving online because of the pandemic. Nevertheless, it's hard to justify DocuSign's valuation at current levels. (Indeed, this sentiment was expressed by other analysts commenting on this morning's results. Says investment bank Piper Sandler, there's literally "nothing to dislike [about DocuSign stock] except for the valuation.")  

And this is a problem not just with DocuSign, but also with Zoom Video and CrowdStrike, and a host of other hot tech stocks as well. At valuations ranging from 45 times sales (DocuSign) to 54 times sales (CrowdStrike) to an astonishing 115 times sales (Zoom), there's nothing wrong at all with any of these companies' businesses. The only thing to dislike about them is their valuation.

Today, investors are making their displeasure with that known.