How predictable are tech stocks?

How predictable are tech stocks? The answer depends on your time horizon.

Article updated: 28 April 2020 11:00am Author: Michael Baxter

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Tech stocks are notoriously volatile. They are like those magnificent men with their flying machines, they go tiddly-up-up, and down tiddly-down-down.

It's just that in the long run, I expect them to stay up, tiddly-up.

The challenge for an investor then becomes a question of timing in when they sell.

Bear in mind, techs are not usually for investors seeking an income — with a few exceptions, their dividends are at best lousy, at worst, they are non-existent.

If at some future point you want an income from your investing, then at that point you might want to sell techs and buy income stocks.

That takes me to volatility.

Volatility

Volatility, and few assets are more volatile than techs, is the big challenge that gets in the way of selling. If you have a specific date in mind, say 31st December 2029 for when you sell, then I would say that this makes tech investing risky. If instead you say, I’ll sell techs on the first occasion after 31st December 2029 when their collective share price hits a new high, then that becomes less risky.

The future is tech

Now, I know what you are thinking. How do we know that techs will ever reach new all time highs after 31st December 2029?

And that really takes me to the point of this article. I think techs have a very bright future. This decade will be good for techs, the next decade will be good for techs.

The reason is simple, we are in the midst of the fourth industrial revolution. Techs have changed the world quite a lot over the last 20 years, they will totally transform it over the next 20 years.

PwC has projected that AI will boost the global economy by $15.7 trillion a year by 2030. Similarly bullish forecasts apply to other technologies such as the Internet of Things.

The Covid-19 crisis will accelerate the shift towards digital. When the crisis is over, remote working will have become more popular. Automation technologies will become more popular.

Business software companies and cloud companies such as Microsoft, SalesForce and Amazon via AWS, will flourish.

I expect Google and Apple to benefit as smart phones mutate into personal AI assistants, and search to become more important as our AI assistants learn to anticipate our needs.

AI companies such as Nvidia will benefit.

The move to electric vehicles will accelerate. Providing it can survive the next 18 months, Tesla will flourish.

TV subscription services will grow in popularity, which will be good news for Netflix and Amazon.

I have not yet made up my mind about Facebook.

Will shares in these techs be volatile? Yes.

But remember, post 2008 techs were among the first to recover. I expect it to be like that this time, too.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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