What happened
Shares of the buy now, pay later fintech company Affirm Holdings (AFRM -1.34%) dropped more than 12% as of 11:32 a.m. EST for no obvious reason, although the company will report earnings results after market close today.
So what
I think there are two main reasons investors are getting spooked today. First, the U.S. Department of Labor reported today that the consumer price index (CPI), a strong indicator of inflation, increased 6.2% from October 2020, blowing by expectations. The CPI saw price increases on a wide range of consumer goods.
Tech stocks tend to not fare as well in an inflationary environment because it increases the cost of doing business, dampens earnings expectations, and investors can get higher yields on safer assets.
The other piece of business likely impacting Affirm's stock is the fact that another high-flying tech lender, Upstart Holdings (UPST -1.25%), saw a big sell-off last night after reporting earnings results that underwhelmed the market. Although the two companies are different, Upstart's earnings results appear to be impacting fintech companies in the sector.
Image source: Getty Images.
Now what
Similar to Upstart, the valuation and share price of Affirm have surged since the company's initial public offering at the start of the year. The problem with sky-high valuations is that they come with sky-high expectations and little room for error.
Upstart's recent earnings results beat analyst expectations on earnings per share and revenue and the stock is down more than 18% since. Keep this in mind with Affirm to report earnings later today.
