A higher interest rate increases the cost of capital. As with other assets, a stock’s present value is the sum of its future cash flows discounted to their pres

A higher interest rate increases the cost of capital. As with other assets, a stock’s present value is the sum of its future cash flows discounted to their present value, using the weighted average cost of capital as discount factor. Because tech stocks tend to be growth stocks, i.e. most of their value (expected cash flows) derives from their high-growth period, not their steady state (their post-high-growth life period), they are more sensitive to changes in the cost of capital and this, interest rates. More “mature” companies, i.e. companies that have reached steady state (low growth) are companies that no longer invest as much excess capital in their business because they cannot find (enough or big enough) capital projects to generate a positive return on their invested capital. These companies tend to instead distribute excess returns as dividends. Once a company is known as a dividend-paying company, it’s very hard for it to go back to anything else, as the composition of their shareholders now represents entities that want dividend yield. That’s where, for example, buy-backs come in handy, as they’re perceived to be temporary measures. In other words, companies that still think they may find sufficient capital projects and don’t want to become steady dividend payers tend to often embark on buy-backs instead. In sum, more nature (low growth) companies are less sensitive to interest rates because their stock prices derive from more predictable low-growth expectations, while tech stock prices as per their discounted cash flow value tend to still be driven by high-growth period expectations. The reason why there are very large tech companies shows that the notion of “large” has, over the past few decades, decoupled from the notion of “mature”. The latter would more aptly be characterized as “driven by low growth expectations”. This is how you end up with an entire industry (tech) that hasn’t matured yet (of course, “mature” can mean different things outside of this context, which can create confusion).