Is it the most opportune time to invest in technology stocks?
Team Veye | 03-Jul-2022
Technology stocks have an unending growth story. Technology companies delivered record returns since the pandemic broke out, but the sector underwent a sudden downturn in high-growth tech stocks with the tech-heavy Nasdaq 100 index and Dow Jones U.S. tech sector drifting much lower.
While the slump in the sector could be attributed to steep valuations, global financial firms like JP Morgan, besides saying that it sees 'peak revenue growth behind us' as also downgrading the outlook of the sector to ‘underweight’ added fuel to the fire.
The tech sector was widely seen as overvalued at the market peak in late 2021, it also faced macro headwinds, including factors like interest rates that could cause a decline in profits, revenue or growth and high attrition.
If investors were to closely analyse, what has really changed in the past two years. The Russia Ukraine crisis, which had the ripple effect of disrupting the entire supply chain, rising energy prices and spiking inflation.
But have the fundamentals of tech giants like Google, Microsoft, and Apple also changed. In fact, some of these, like Google, could see the return of margin expansion in 2023 due to the consistent increase in its cloud recurring revenue.
Some of the newbies in the sector don’t have revenues or profitability, their valuations being based on projections. With rising rates of interest, these could come under compulsion of becoming profitable faster and may see a temporary shake out. Mature tech companies, on the other hand, have a good, time tested revenue model and could be available at attractive valuations.
Technology is a sector which is undoubtedly going to keep growing. It has a track record of giving phenomenal returns with the potential for more in the future.
A fall in the stock markets could strike an optimistic tone for global technology stocks and provide an opportunity for investment in the sector. With tech stocks falling sharply is it a good time to buy these stocks
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