Historically, the technology market has outperformed other industries, with many technology businesses having witnessed massive growth in recent years, especially when compared to benchmark stock market indices.
But despite the fact that the technology market has been very popular over the past few decades, particularly if you consider growth stocks like American big tech companies, the sector is currently facing challenges that are affecting investor views on future profits. In addition, the technology market is both volatile and very competitive, which means that it is a risky sector to trade - you need to be extra careful when you decide to buy tech companies.
Is the tech sector still a good trading opportunity in 2023? What are the potential advantages and risks of investing in the technology market? Let's take a closer look at this industry, so you'll be able to choose whether or not to include the tech market in your portfolio.
What is the tech market?
The tech market is involved in the production and sale of technology-related goods and services, such as hardware and consumer electronics, software programs and applications, cloud computing services, platforms, artificial intelligence and machine learning technologies, e-commerce platforms, digital content, and social networks, among others. It also covers numerous industries such as information technology, telecommunications, electronics, biotechnology, and more.
State of the tech market
After an outstanding 2020 and 2021, during which the tech market profited from the measures implemented in the wake of Covid-19 (home entertainment, remote work, etc.)), the market for tech goods and services suffered a less dynamic 2022, marked by a number of difficulties they still face today, such as issues around supply chains, hiring, and innovation, as explained by Deloitte in its 2023 technology industry outlook, especially with current macroeconomic and global uncertainties.
Companies, households, and other economic actors are indeed experiencing higher costs and lower purchasing power, which impacts their investment and spending decisions, especially because of the rapid rise of interest rates in the United States and globally, as well as ramping inflation. This context has impacted growth prospects of these companies, which now need to think about new ways to attract consumers and answer their needs.
To thrive in 2023, tech companies will still need to deal with softening consumer spending and lower product demand, while creating more resilient, efficient and intelligent systems, processes, products, and services that will help other industries to profit from digital advancements through innovation and transformation. Moreover, tech companies will need to deal with new regulations, especially when it comes to usage of user data, privacy, and transparency.
Tech market - What are the growth opportunities?
The tech industry offers several growth opportunities. But you will first need to know how to select the best companies within the industry. First, you should focus on well-positioned companies that are best able to capitalize on the trends that will support the sector’s growth in 2023 and beyond. Pick firms that are at the forefront of innovation and that have a strong technological leadership position. These companies should also have great financial results, with a strong track record of revenue growth, profit margins, and return on investment. Finally, be sure the companies you’ve selected are dominant players with a competitive edge.
Here are some of the growth opportunities in the tech industry:
- Bringing technology capabilities to other industries to improve efficiency, allow new business models, revolutionize consumer experiences and more
- Artificial intelligence (AI)
- Machine learning (ML)
- Internet of Things (IoT)
- Cloud computing
- 5G technology
- Cybersecurity
- E-commerce
What are the risks of investing in the tech market?
Investing in the tech market can offer great opportunities, but it is important to carefully evaluate the potential risks before making any investment decisions. Thorough research should be conducted about the market trends and perspectives, about individual companies, as well as about current and upcoming economic conditions to identify potential opportunities and risks. You will then be able to make more informed investment decisions to maximize your chances of success when investing and trading the tech market.
Here are the most common risks associated with the tech industry:
- Volatile stocks
- Economic uncertainty and slowdown
- Inflation
- Tightening monetary policies
- High competition
- Innovation risk
- Compliance with evolving regulations
- Market saturation
- Difficulty in hiring people with specific knowledge and the right mix of skills and competences
- Geopolitical tensions and their impact on supply chains
How to invest in the tech market
The tech market offers various investment options. Depending on your financial goals, strategy, and risk tolerance, you might be interested in short-term trading using derivative products such as Contract for Difference (CFD). This will give you a chance to profit from margin and leveraged trading, as well as a chance to buy or short-sell stocks from the tech market.
For investors who prefer to hold tech stocks for medium to long-term, buying real stocks are a better option. You can also bet on a basket of tech shares over both the short term and longer term through Exchange-Traded Funds (ETFs).
Investors must be prepared for the cyclicality and volatility of the tech sector, especially with the current monetary policy tightening cycle and high inflation. Therefore, always remember to use money management rules to mitigate the risks of investing in this industry. Also remember to diversify your portfolio.
Remember that ActivTrades offers the opportunity to invest in the tech market through both short-term trading using CFDs and longer-term investment using a non-leveraged investment account. Therefore, both investors and traders will be able to take advantage of all market opportunities from the health industry through one trading platform.
You also need to decide if you’re going to rely on technical analysis or fundamental analysis to make your trading decisions. Technical analysis involves studying past market data to identify trends and chart patterns to make predictions about the future direction of a market. On the other hand, fundamental analysis involves analyzing a company's financial health and industry trends among other factors to determine its intrinsic value and potential for growth.
Which international big companies can you invest in to profit from the tech sector today?
- Apple
- Amazon
- Alibaba
- Alphabet
- Cisco Systems
- Capgemini
- IBM
- Intel
- Meta Platforms
- Microsoft
- Netflix
- Nvidia
- Oracle Corporation
- SAP
- Salesforce
- Tencent Holdings
- Tesla
- TSMC
- Zoom
