Technology is a vast sector that includes gadget makers, software engineers, wireless providers as well streaming services, semiconductor firms, cloud computing companies and wireless service providers. The technology sector includes any company that sells items or services heavily infused with technology.
Software companies are increasingly adopting a software-as-a-service model, where customers purchase an annual subscription to a program instead of purchasing a one-time license. This arrangement provides recurring revenue to the software company.
Semiconductor semiconductor chips provide the power for today’s devices. Companies making semiconductor chips design, manufacture and/or supply central processing units or graphics processing devices (GPUs), as well as memory chips and other types of chip that enable modern devices function.
Telecom companies that offer wireless services are part of the tech industry, along with video streaming providers offering high-quality streaming content and cloud computing service providers.
The Top Tech Stocks you Should Be Watching in 2023
Technology companies make up the majority of the world’s most valued companies. Here’s the list of top-rated technology stocks that you should keep in mind for investors:
Amazon.com (NASDAQ.AMZN) has been the world’s most popular online retailer, and also a major provider of cloud computing infrastructure. Jeff Bezos has resigned as founder in July. The company is now in a new chapter. It is also the 2nd-largest provider in cloud infrastructure services. Apple(NASDAQ:AAPL), is responsible for the production of the iPhone, iPad, Mac computers and Mac computers. Apple’s reputation as a preferred destination is bolstered by their strong customer loyalty. A growing range of services also ensures that Apple has a constant flow of repeat customers.
Intel NASDAQ:INTC is one among the most prominent semiconductor companies worldwide. They produce central processing unit (CPUs) and special chips for artificial intelligence. Intel has made significant investments in manufacturing with plans for supplying chips to other firms.
Netflix, NASDAQ:NFLX, is the undisputed market leader in video streaming. It invests billions of dollars each year to create engaging content to keep its subscribers engaged.
Meta Platforms NASDAQ:META is the largest social media platform in the world with over 2,000,000 active users every day on Facebook, Instagram Messenger, Messenger and WhatsApp. The company sees virtual reality as its future growth driver.
Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) is the parent company of Google (NASDAQ:GOOG) and Android, the widely popular operating system for smartphones.
Meta (formerly Facebook), Amazon.com.au, Apple. Netflix. Alphabet.Google are sometimes called the FAANG stocks. These companies have dominated their industries for years. Their stocks have earned impressive returns over this period. Unfortunately, the tech stock market plunged in 2022 with almost every other major stock.
Technology Stocks.
It was impossible for tech companies to predict their future performance in March 2020 because of the COVID-19 Pandemic, which decimated economies worldwide and led to huge job losses. Some tech firms suffered immediate negative repercussions. Alphabet Meta was the worst-hit, with a slowdown of revenue growth and reduced advertising spending.
Other tech companies enjoyed great success. Amazon saw an increase e-commerce revenue as people stayed away. Netflix saw a rise as subscribers grew as home-bound consumers had more time to watch TV. Because of the limited spending options and unimaginable stimulus cash, consumers were still eager to buy smartphones and computers. Many tech firms experienced record revenue and profits in this period.
However, 2022 marked the beginning the golden period in the pandemic’s demise. In response to inflation spiralling out of control, the Federal Reserve Board raised interest rates rapidly, increasing consumer spending. When supply systems improved and pandemic level demand decreased, shortages became gluts. Stock markets around the globe crashed into bear market territory. IT companies were the worst performers.
Amazon significantly increased its online and cloud computing capacity in 2020-2021 to satisfy unprecedented levels of customer demand. To cut costs, Amazon overbuilt its ecommerce infrastructure and spent the second part of 2022 closing some warehouses. Cloud computing’s slowdown began in 2022 as well, possibly due overcapacity. Amazon reported a loss of $3 billion over nine months in 2022 after the pandemic.
Microsoft was able sell large numbers of Computers during the epidemic. Record sales volumes broke the long-held downward trend and reached a new high. The combination of working from home, studying online and stimulus money fueled the upswing. The boom quickly turned into a historic bust. Globally, PC shipments declined 16% by 2020. The fourth quarter saw a 29% decrease. Microsoft’s PC-dependent goods will see another drop in 2023.
The PC market is a particularly tough time for Intel. Intel was unable to maintain its market share in the PC market after it lost ground to Advanced Micro Devices, NASDAQ:AMD. This led to a return of Intel in 2021 and 20,22 with Raptor Lake (PC CPUs). These products weren’t a huge success. However, they were sold during one of the worst PC recessions. Intel continues investing tens of millions annually in increasing its manufacturing capacity even as semiconductor prices fall.
Netflix added subscribers at an unparalleled rate in 2020. But, the company’s fortunes changed when competition intensified. North American Netflix began losing subscribers by 2021. The reason was demand being pulled forward, and an influx in high-quality alternatives like Disney+(NYSE:DIS), HBO Max/CBS.TV, and many smaller streaming service providers that offer more choice than ever. Netflix has responded by changing the policies of ad-supported plan and reducing costs.
Facebook changed its name, Meta Platforms, in 2021 to better reflect its focus of virtual reality and the metaverse. Although advertising revenue through its social media platforms remains the primary source of income for Facebook, privacy changes by Apple and a challenging economic environment in 2022 have made it more difficult. Although advertising revenue continues to fall, Meta continues spending billions of dollar annually on its metaverse initiatives. There is almost nothing left.
Alphabet revenue growth in 2022 was very slow, with revenue growing only 6% annually in the third-quarter. Google Cloud business continues to grow rapidly but core advertising revenues continue to be insecure. Macroeconomic concerns aside, cash-cow searches businesses may be in danger from AI-powered AI-powered service like OpenAI ChatGPT. It took the internet by storm in 2022. Microsoft too invested heavily.
Analyzing Technology Stocks
The price/earnings ratio can be used to measure the profit potential of mature tech companies. Divide the stock price and the per share earnings, and you get a multiplier which indicates how highly the market values current profits for the company. Investors will place greater importance on future earnings growth prospects if this number is higher.
Many tech companies may not be profitable, and the price/earnings ratio doesn’t accurately account them. Younger firms need to see revenue growth. Make sure that you are confident in the future growth prospects of unproven investments.
In order to be profitable, tech companies should work hard to turn losses into profits. Efficiency should increase as the business expands. This includes sales and marketing expenditures that close deals. If the growth in spending is greater than revenue growth, then it may indicate that there is something wrong.
A great tech stock will trade at a reasonable price given its growth potential. It can be difficult, however, to determine those growth prospects accurately. A higher price for the stock might make sense if you are expecting earnings to skyrocket in the future. However, if those projections don’t pan out, your investment may not be as successful.
One way to reduce the risk is to invest in an Exchange-Traded Fund (ETF), which specializes in tech stock investments. The Ark Innovation ETF NYSEMKT ARKK is one such option. However, the Ark Innovation ETF’s bets on high-flying technology stocks may prove less secure that investing directly in some listed tech giants.
Investing on tech stocks can be dangerous, but it is possible to minimize this risk by only investing when your growth prospects justify the current valuation.
