Adobe’sStock had Tuesday’s second worst day in a year, as did shares of cloud-based software companies such as Microsoft and Google. CloudflareAnd ZscalerAfter being plunged JPMorganA series of downgrades were issued by analysts citing high valuations.

JPMorgan analysts Sterling Auty (with Jackson Ader) and upgraded five companies in a report on 2022 software technology.

The analysts stated that downgrading was due to a number of factors, including a lack of upside in our price targets, valuation considering the possibility of rising interest rates in 2022 and adjustment of discount rates in the current environment. Also, reasonable cash flow projections were re-evaluated.

Tech investors have been worried about rising interest rates and high inflation for over a month.

As part of the two-day Federal Reserve meeting regarding monetary policy, the Federal Reserve is expectedMarkets expect a significant policy shift by the Federal Reserve on Wednesday, as they anticipate a reduction in its bond-buying program prior to rate increases. A CNBC Fed SurveyIt is predicted that the central bank will increase rates three times each year for the next two years. This could begin in June 2022.

High-multiple tech firms tend to experience a greater impact from higher rates because they affect future cash flow projections which are a critical metric for valuing growth stock.

The JPMorgan analysts stated that rising rates could lead to increased multiple stock software trading at over 20x the revenue.

FactSet reports that Adobe’s revenue is 21 times its trading price. Prior to Tuesday’s 6.6% drop, Adobe shares were up 31% this year, topping the 20% gain in the S&P 500. The stock rose to $658.30 after the rally, which was just below JPMorgan’s target price of $680. JPMorgan decided to lower its rating from buy to neutral.

“Adobe has been one of the better performers across our coverage in 2021, especially in the large-cap category, as improvement in the economic environment coming out of the pandemic motivated companies to purchase digital marketing/advertising solutions to generate top-line revenue growth,” the analysts wrote. The stock is now less than 10% off our target price and we have downgraded to a neutral rating.”

Adobe stock fell 8.2% 11 days ago. This was the steepest decline of 2021.

Following Tuesday’s report, the two largest declines were seen in shares of security companies Zscaler (down 7.6%) and Cloudflare (down 9%), respectively. Zscaler was up 55% in the previous year and now has a enterprise value to revenue multiple of 39 for 2022. Cloudflare traded at a multiple 61 and was up 91%

JPMorgan stated that Zscaler has been downgraded from hold to sell because it appears we are closer to tightening rates as the Fed looks for inflation to catch up.

JPMorgan predicted that Cloudflare would be the most lucrative revenue-generating company in its area of coverage within 10 to 15 Years. It’s positioning itself as “fourth cloud.” Amazon, MicrosoftAnd Google.

JPMorgan announced that Cloudflare, which is “the most expensive stock in the coverage,” was being reduced to sell because of multiples in software.

DatadogJPMorgan’s downgrade on Tuesday caused shares to drop 6.5% According to JPMorgan, the downgrade of its rating for data analytics and monitoring firm is “purely an appraisal call.”

According to FactSet, the stock traded for 61x revenue and was up 75% before Tuesday’s fall.

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