Most new-year-prediction articles tend to make a cliched statement regarding the previous year's 'constant market shifts'. Yet, that sentiment holds when it comes to US tech stocks. From the NASDAQ tech 100 to smaller companies—no one was spared.
However, 2023 seems to be telling a different story. Tech securities are surpassing the broader market by a significant margin. More importantly, this surge is not a bubble or a fluke.
Let's understand why.
Overall valuations in the tech sector have undergone a brutal reset. This was primarily due to rising interest rates and the resulting threat of a potential recession. Understandably, most companies reevaluated their top-line performance trajectory and made decisive changes to their strategies.
For instance, Salesforce laid off 10% of its employees, readjusted its non-GAAP target and increased its quarterly profit margins. The company also announced a markup to its share repurchase authorization of 10 billion USD.
Okta is doing something similar with its revenue projections for this year. Previously an ambitious organization that aspired for massive growth during the pandemic, the company is now targeting a 17% increase in revenue.
The US tech stock index benefits from industry members demonstrating cost discipline. Combined with the desire to return money to shareholders, the related organizations earn back the market's trust.
While there are signs of growth, it is still too early to offer definitive advice on your next move as an investor.
Granted, the surge is due to deliberate market actions, which means the broader recovery trend is here to stay. Indeed, the NASDAQ tech 100 is valued at 7,129.20 as of March 31st, 2023.
However, it is almost impossible to say if the next industry offering will not completely change the current environment in a sector marked by massive undertakings.
In short, hold on to the tech stocks you already have in your portfolio. And while it may be tempting to add to it before the prices go up by a significant margin, avoid going overboard with purchases.
NASDAQ primarily deals with technology-related companies and organizations in their growth phase. Due to this, the stocks listed on the exchange are more volatile, with the index considering outstanding value and market capitalization. In contrast, other indexes, such as Dow Jones, use a price-weighted average.
Apple, Tesla, Meta and Amazon are some of the most prominent companies listed under NASDAQ tech stocks. Nvidia and Microsoft are also on this list due to their extensive hold on the hardware and software space.
The US tech stock index has fluctuated in the last three decades. Its most prominent high was the 'dot.com' bubble in the 1990s. And while the market showed signs of a downward trajectory in 2022, it seems to be recovering.
Aside from portfolio diversification, investing in US tech stocks offers access to next-gen innovations like Artificial Intelligence (AI) and Machine Learning (ML). Since these are being increasingly incorporated into products, services and organizational processes, having a stake here can open up opportunities for massive growth.
Like other securities, tech stocks can be volatile. Apart from that, there are instances when unrelated factors can influence share valuation. For example, Tesla's stocks dipped significantly due to Elon Musk's decision to buy Twitter. Part of that was also because the shareholders lost confidence in the company.