Investing In Tech Stocks

The technology sector is vast and includes device manufacturers, software developers, wireless carriers, streaming service providers, semiconductor companies, and cloud computing providers, to name just a few. Any company that sells a technology product or service most likely belongs to the technology industry.

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What are technology stocks?

What are technology stocks?

hardware companies

They design and manufacture equipment such as:

• Personal computer.
• Smartphones.
• Fitness trackers.
• Smart speakers.
• Business equipment such as servers and network equipment.

Software companies

They develop software that runs on hardware such as

• OX.
• Database:
• Cyber ​​Security Software.
• Productivity software.

Software vendors are increasingly using a software-as-a-service model, in which customers buy a subscription to a program rather than a single license. The deal generates regular revenue for the software publisher.

Semiconductor chips power devices. Semiconductor companies design and/or manufacture CPUs, GPUs, memory chips, and a variety of other chips that power today's devices.

Telecommunications companies that provide wireless services are part of the high-tech industry. The same goes for video streaming companies that offer easy access to high-quality content and cloud computing providers that offer streaming services.

The best tech stocks in 2023

The best tech stocks in 2023

Many of the most valuable companies in the world are technology companies. Here are some of the most dominant and impressive tech stocks that investors should consider:

1. Amazon.com ( 1.21% AMZN ) is a leading provider of online shopping and cloud computing infrastructure.
2. Microsoft ( 0.85% MSFT ) is a dominant software company known for its Windows desktop operating system and Office productivity software. Microsoft is also the second largest provider of cloud infrastructure.
3. Apple ( 0.48% AAPL ) makes iPhones, iPads and Mac computers. Intense customer loyalty ensures many loyal customers and a growing range of services makes the Apple ecosystem resilient.
4. Intel ( INTC 0.58% ) is one of the largest semiconductor companies in the world. Intel designs and manufactures central processing units (CPUs) for computers and servers, as well as specialized chips for purposes such as artificial intelligence. The company is betting big on manufacturing and plans to make chips for other companies.
5. Netflix ( NFLX -0.66% ) is the leader in the video streaming industry, spending billions of dollars on content each year to maintain its subscriber base.
6. Meta Platforms ( META 0.0% ) is the largest social network with more than 2 billion daily active users on Facebook, Instagram, Messenger and WhatsApp. The company sees its future in virtual reality.
7. Alphabet ( GOOG 0.69% ) ( GOOG 0.77% ) is the parent company of Internet search giant Google and the popular Android operating system for smartphones.

Meta (formerly Facebook), Amazon, Apple, Netflix and Alphabet (Google) are sometimes grouped together as FAANG stocks. The companies dominate their industries and their stocks have produced impressive returns over the past decade. However, that winning streak ended in 2022, with shares of nearly every major technology company falling along with the broader market.

Tech stocks, COVID-19 and the bear market

Tech stocks, COVID-19 and the bear market

In March 2020, it was impossible to predict how tech companies would perform as the COVID-19 pandemic brought the economy to a standstill and led to massive job losses. Some tech companies were immediately hit hard. Alphabet and Meta, for example, saw a sharp slowdown in revenue growth as hard-hit sectors like travel and hospitality cut back on advertising.

Other tech companies thrived. Amazon benefited from an increase in e-commerce sales as shoppers left stores, and Netflix saw an increase in subscribers as consumers had more time to watch TV when away from home. Insatiable demand for computers, smartphones and other devices boosted sales from Intel, Microsoft and Apple. The powerful combination of limited opportunities for consumers to spend their money and unprecedented stimulus money has helped many technology companies post record revenues and profits.

But 2022 was the beginning of the end of the epidemic. Rising inflation prompted the Federal Reserve to rapidly raise interest rates, putting pressure on consumer spending. Scarcity turned into captivity as supply chains improved and demand fell to epidemic levels. The stock market fell, entering bearish territory. Technology stocks were among the worst performers.

• Amazon has significantly expanded its e-commerce and cloud computing capabilities in 2020 and 2021 to meet the overwhelming level of demand. The company is ramping up e-commerce and has spent the second half of 2022 closing and delaying some warehouses to cut costs. Cloud computing activity also starts to slow down a bit in 2022, and the company could face a similar overcapacity problem. Record profits quickly disappeared during the pandemic, with the company reporting a net loss of $3.8 billion in the first quarter of 2023 alone.
• Microsoft benefited from strong PC sales during the pandemic. The PC market experienced a resurgence as sales hit their highest level in a decade, breaking a long streak of declines. Working and learning from home, combined with stimulus measures, contributed to the boom. Now that boom has turned into a historic bust. Worldwide PC shipments will fall 16% in 2022 and 30% year-over-year in the first quarter of 2023. Amid this historic decline, Microsoft is betting big on artificial intelligence.

• Intel has also been hit hard by the downturn in the PC market. After seeing its market share shrink against rival microdevices ( AMD -1.35% ) in recent years, Intel struggled in 2021 and 2022 with its Alder Lake and Raptor Lake desktop processors. The products were big winners, but they are selling in the weakest PC market in years. All this is happening while Intel is investing tens of billions of dollars a year to expand manufacturing capacity while the semiconductor market is in decline.
• Netflix grew subscribers at a record pace in 2020, but its fortunes have changed as competition heats up. In 2021, Netflix lost some subscribers in North America, partly due to increased demand and partly due to the rapid emergence of high-quality alternatives. Disney ( DIS 2.46% ) Disney+ quickly gained subscribers, Warner Bros. Discovery's Max has grown in popularity and a number of smaller streaming services have given consumers more choice than ever. Netflix has taken a defensive stance, changing its tone on ad-supported plans and struggling to cut costs.
• Facebook changed its name to Meta Platforms in 2021 to emphasize virtual reality and the metaverse. Advertising revenue from social media applications remains the main source of revenue. While sales recovered from the initial weakness of the pandemic, the difficult economy of 2022 and Apple's changes to privacy on iOS devices created new challenges. While the advertising industry struggles, Meta pours billions of dollars into its metaverse efforts every year and so far has little to show for it.
• Alphabet's revenue growth slowed significantly in 2022, with third-quarter revenue falling just 6% year over year. Alphabet's Google Cloud business is growing fast, but its core advertising business is struggling with a weakening economy. In addition to macroeconomic challenges, Alphabet's research business could face a real threat from AI-based services. OpenAI's ChatGPT took the world by storm at the end of 2022, and Microsoft was a major contributor.

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How to analyze technical stocks

How to analyze technical stocks

For mature, revenue-generating technology companies, the price-to-earnings ratio is a useful metric. Divide the share price by the earnings per share and you get a multiple that shows how much the market values ​​the company's current earnings. The higher the multiplier, the more importance the market places on future earnings growth.

Many tech companies are not profitable, so price-to-earnings cannot measure it. Revenue growth is more important for new companies. If you're investing in something that doesn't have a proven track record, you want to make sure it has steady growth prospects.

For loss-making technology companies, it is also important to shift the bottom line from losses to profits. As a business grows, it must become more efficient, especially when it comes to the sales and marketing expenses required to close a business. If this is not the case, or if expenses are increasing as a percentage of income, this may indicate that something is wrong.

After all, good tech stocks trade at a reasonable price given the growth prospects. Determining these growth prospects is the hardest part. If you expect earnings growth in the coming years, it might be a good idea to pay a premium on the stock. But if you are wrong about these growth prospects, your investment may not pay off.

One way to avoid mistakes is to invest in exchange-traded funds (ETFs) that focus on technology stocks. The Ark Innovation ETF ( ARKK 1.24% ) is one option, although the fund's bets on high-profile tech stocks may be riskier than investing in the tech giants listed above.

Investing in technology stocks can be risky, but you can reduce your risk by only investing when you are confident that their growth prospects justify their valuations.

Susan Frey, CEO of Alphabet, is on the board of directors of The Motley Fool. John McKee, former CEO of Amazon's Whole Foods Market, is on The Motley Fool's board. Randy Zuckerberg, former director of market development, Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is on the board of The Motley Fool. Timothy Green holds positions at Intel and Walt Disney. The Motley Fool lists and recommends Advanced Micro Devices, Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Netflix and Walt Disney. The Motley Fool recommends Intel and offers the following options: long January 2023 calls at $57.50 on Intel; long January 2024 $145 call options on Walt Disney; Long January 2025 $45 calls for Intel and short January 2024 $155 calls for Walt Disney. The Motley Fool has a disclosure policy.

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