Are technology stocks running out of steam?
The Nasdaq 100 is weakening despite the good numbers of the “Big Five”. Still, investors shouldn’t turn their backs on the US technology index. On the contrary: especially in the long term, the stock market barometer offers attractive return opportunities.
Technology titles are the future – or are they not? In the past few weeks, the US Technology Index Nasdaq 100 put in reverse – even though Apple, Amazon and Alphabet were able to significantly increase their sales in the first quarter of 2021. Why is that? Part of the weak development of the Nasdaq is certainly due to the zeitgeist. Market participants are currently looking at inflation: copper and oil are rising and consumer prices in the USA have recently reached the highest level in 13 years at 4.2 percent compared to the same month last year. Growth companies that make their profits in the future are more likely to be punished in this environment. Investors want value stocks and cyclicals that benefit from the emerging economy and are already generating cash today. But investors who think long-term should not be blinded by the zeitgeist.
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Tech companies have a lot of irons in the fire
The big technology groups like Apple, Alphabet, Facebook or Amazon are already making lush profits. For example, Amazon recently tripled its quarterly profit, sales rose by 44 percent. Alphabet also increased its revenues significantly by more than a third and left the analysts’ estimates for earnings per share well behind. How should investors deal with this situation now?
The prices on the markets develop in waves. In the end, it is the long-term moving average that counts. In the case of the major technology stocks, everything indicates that this long-term trend will continue to point upwards. Interim corrections are good opportunities to increase positions or to build up for the first time. Those who are honest with themselves will see that the megatrend of digitization is far from exhausted. The pandemic has revealed that administration and health systems, for example, still have great potential. A paradigm shift is also taking place in the area of mobility. Volkswagen’s e-car offensive shows that combustion engines could be obsolete in the medium term. It is obvious that this will also change the way we understand mobility. Instead of sporty chassis and grumbling engines, common sense should soon prevail in the automotive industry. Increasing demands on safety and comfort mean good opportunities for autonomous driving. It is obvious that this has further great potential for technology groups.
The good thing about Alphabet, Apple and Co is that the success of an investment does not only depend on a single trend – autonomous driving is just one of many hot items in the fire of technology companies. The Internet of Things, Industry 4.0 and also the digital finance industry around blockchain and Co offer numerous other opportunities. Due to numerous patents and their enormous financial resources, the large technology groups should have all the prerequisites to recognize the next digital revolutions in other industries in good time and to position themselves for them.
Of course, thoughts of a revolution in finance or the refrigerator that thinks for itself are dreams of the future. But it is by no means absurd that these upheavals will be initiated within the next three to five years. Technology companies have everything they need to be early on with new trends and to secure market shares in good time. Since Apple, Amazon and others are already making enormous profits today, from an investor’s point of view it doesn’t bother a bit that there is a good portion of imagination slumbering in the stocks. The difference to the situation more than 20 years ago is clear: Back then, technology titles only priced in fantasy and otherwise hardly generated any sales. Today it looks very different.
It all depends on the choice
Investors would do well to see the weakness of the US Nasdaq 100 index in a long-term context: sometimes stocks fall for no rational reason. There is also a difference between the “Big Five” on the technology market and the numerous smaller companies. With the latter, the relationship between solid sales in the present and growth imagination may be more unfavorably distributed than with the big players in the industry. For this reason, too, it is worthwhile to take a close look at technology titles and select attractive values according to your personal taste. Even if it may look a little different at the moment: technology titles also have a future!
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