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The pandemic taught us a lot about the vulnerability of our world. It reminded us that our reality is more fragile than we think and that things can change without warning. However, it also gave us a lot to think about regarding technology, including how vital technology is in the modern world and how much it impacts our day-to-day lives.

The stock market came to similar realizations about technology and its vital role in the current age. As a whole, the tech sector saw a 47.5% gain this year, and the five tech giants Apple, Microsoft, Alphabet (Google’s parent company), Amazon, and Facebook now make up about 25% of the S&P 500 Index’s value. That’s a lot of power in the hands of Big Tech.

That being said, all hot stocks are expected to start cooling off at some point, so the question remains: “What will happen to tech stocks? Will they keep going up?”. Keep reading for a quick overview of the current state of tech stocks and what the future might hold for them.

Can Tech Stocks Keep Rising in Value? 

Market strategists are now predicting that in 2022 investors may focus less on big tech stocks and return to oil, banking, housing, and healthcare companies. Why? 

The Federal Reserve is now starting to cut back on bond purchases, which in turn should raise long-term interest rates. Short-term hikes are also likely to occur in the next year, possibly lowering many tech firms’ earnings. Furthermore, there’s a possibility that the government will enforce new federal regulations against the tech giants, which could impact the value of their stock on the market.  

The pandemic provided the ideal opportunity for many tech companies to grow exponentially. People were locked up inside and turning to technology for entertainment and connection. Tech needed to be developed and implemented for remote work and remote schooling purposes. Fintech and health tech needed to evolve quickly to keep systems working correctly.

The advancements and innovations made by many companies in the tech sector have paved the way for the future and will ensure a close eye is kept on tech stocks for a long time to come. 

Still, many analyzers foreshadow that 2022 will be a good year for industrial and financial companies, real estate stocks, and travel companies. This prediction comes from the expectation that the economy will open up even more and a semblance of normalcy will return to people’s daily lives. People will go back to their pre-pandemic habits of going on vacations, attending parties, enjoying restaurants, and for many, returning to an in-person work environment. This may contribute to a slight drop in tech stocks in the coming year.

Many investors are counting on the tech giants to remain “bullish” because if the stocks plummet now, it’s not good news for the S&P 500. Many experts still have optimistic outlooks on tech stocks into 2022, but other sectors might enter into the spotlight, including oil and real estate/housing. 

What’s the Catch?

Many tech stocks, particularly cloud software companies, are not profitable—even some that could be profitable with unadjusted earnings are not so under the GAAP. How much of this has to do with relative valuation vs. absolute valuation (which looks at owner’s earnings, discounted cash flow, and more fundamental aspects of investing)? 

Lately, this paradigm has shown signs of cracking with companies like DocuSign and PayPal taking tremendous valuation drops. Of course, not every fast-growing company turns into highly profitable enterprises like Facebook and Amazon are. It’s a possibility that many investors may never recover from these tech stocks.

Reach out to me, Harvey Sax,  and we will get the answers together.

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