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Fed Hike or Pause: Tech ETFs Will Likely Rule in 2023
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U.S. tech stocks hit rough weather last year as surging inflation weighed on their lofty valuations (caused by massive policy easing since the COVID-19 outbreak). Although tech stocks tried to recoup losses several times, investors remained cautious about betting big on growth stocks.
Rising rate worries dampened the appeal of the stocks that rely on easy borrowing for superior growth. Hence, shares of high-growth technology companies remained in a tight spot. As a result, the largest tech ETF Technology Select Sector SPDR Fund (XLK - Free Report) lost about 25% last year. Among the group of mega-cap companies like Amazon, alphabet and Facebook, stocks lost in the range of 35% to 65%.
Tech Is Back in 2023
The performance of tech stocks is much better so far this year with XLK returning 20%. More rally should be in the cards. At the start of this year, Daniel Ives, Wedbush’s well-known tech bull, said he sees reasons for hope in the tech sector in 2023, as quoted on TipRanks. “We see growth opportunities as we believe overall the tech sector will be up roughly 20% in 2023 from current levels with Big Tech, software, and semis leading the charge despite the macro/Fed wild cards,” said Ives.
Below we highlight a few reasons for why tech will surge higher this year.
Crisis in the Banking Sector
The global banking sector is in tight spot. Since early March, Silicon Valley Bank, Signature Bank and First Republic Bank have failed in the United States. There was the buying of Credit Suisse by the UBS and the panic-selling in Deutsche Bank. Here is not end. There is renewed signal of crisis in PacWest Bancorp and Western Alliance Bancorp. Both shares were down at least 15% in Tuesday trading.
Half of America's banks are at risk of insolvency due to the collision of the crashes in the US real estate and bond markets, combined with $9 trillion in uninsured deposits, which can vanish quickly in the digital age, potentially triggering a credit crunch, per Telegraph. Such crisis has led investors to look for safe-haven in the equity space. In this pursuit, tech ETFs should emerge as winners.
Layoffs to Boost Profitability?
Silicon Valley layoffs have been intense. Amazon, Meta, Twitter, Salesforce – most of the tech giants have been on layoff spree. Small-cap tech companies are also on spree of headcount reduction. Such layoffs and cost reduction may boost profitability of the tech companies.
Upbeat Earnings at Mega-Cap
Mega-cap tech stocks came up with upbeat earnings this reporting season. Facebook’s parent company Meta Platforms (META - Free Report) reported solid results, wherein it outpaced revenue and earnings estimates. The company issued upbeat revenue guidance amid the ongoing progress to bring down costs. Microsoft (MSFT - Free Report) too reported strong results, beating earnings and revenue estimates. The company also provided an upbeat outlook for its nascent artificial intelligence service. Google parent Alphabet (GOOGL - Free Report) topped both revenue and earnings estimates. The result followed two quarters of earnings disappointment.
Tech is New Normal
“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and the growing video-streaming scenario are sure to stay for long. The growing adoption and the ongoing emergence of AI, machine learning and IoT are the winning areas. Strong focus on AI techniques like ChatGPT and the home automation space should favor the technology sector.
ETFs in Focus
Against this backdrop, below we highlight a few tech ETFs that have been in momentum this year and have a lower P/E than FactSet Segment Average of 18.35X.
WisdomTree Artificial Intelligence and Innovation Fund (WTAI - Free Report)
The underlying WisdomTree Artificial Intelligence & Innovation Index identifies companies that are primarily involved in the investment theme of AI and Innovation. The fund charges 45 bps in fees.
Amplify Transformational Data Sharing ETF (BLOK - Free Report)
The Amplify Transformational Data Sharing ETF is an actively managed ETF that seeks to provide total return by investing at least 80% of its net assets in the equity securities of companies actively involved in the development and utilization of transformational data sharing technologies. The fund charges 71 bps in fees.
The underlying FactSet Big Data Refiners Index tracks the performance of companies that provide analytics, software, hardware and other computing infrastructure for managing and extracting information from large structured and unstructured datasets. The fund charges 58 bps in fees.
The underlying S&P Technology Dividend Aristocrats Index targets companies from information technology, internet and direct marketing retail, interactive home entertainment, and interactive media and services segments of the economy. The fund charges 45 bps in fees.
The underlying Solactive Metaverse Theme Index consists of companies that provide innovative technologies to offer products and services around the Metaverse. The fund charges 58 bps in fees.
The underlying PHLX Semiconductor Sector Index measures the performance of the 30 largest U.S.-listed securities of companies engaged in the semiconductor business. The fund charges 19 bps in fees.
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Fed Hike or Pause: Tech ETFs Will Likely Rule in 2023
U.S. tech stocks hit rough weather last year as surging inflation weighed on their lofty valuations (caused by massive policy easing since the COVID-19 outbreak). Although tech stocks tried to recoup losses several times, investors remained cautious about betting big on growth stocks.
Rising rate worries dampened the appeal of the stocks that rely on easy borrowing for superior growth. Hence, shares of high-growth technology companies remained in a tight spot. As a result, the largest tech ETF Technology Select Sector SPDR Fund (XLK - Free Report) lost about 25% last year. Among the group of mega-cap companies like Amazon, alphabet and Facebook, stocks lost in the range of 35% to 65%.
Tech Is Back in 2023
The performance of tech stocks is much better so far this year with XLK returning 20%. More rally should be in the cards. At the start of this year, Daniel Ives, Wedbush’s well-known tech bull, said he sees reasons for hope in the tech sector in 2023, as quoted on TipRanks. “We see growth opportunities as we believe overall the tech sector will be up roughly 20% in 2023 from current levels with Big Tech, software, and semis leading the charge despite the macro/Fed wild cards,” said Ives.
Below we highlight a few reasons for why tech will surge higher this year.
Crisis in the Banking Sector
The global banking sector is in tight spot. Since early March, Silicon Valley Bank, Signature Bank and First Republic Bank have failed in the United States. There was the buying of Credit Suisse by the UBS and the panic-selling in Deutsche Bank. Here is not end. There is renewed signal of crisis in PacWest Bancorp and Western Alliance Bancorp. Both shares were down at least 15% in Tuesday trading.
Half of America's banks are at risk of insolvency due to the collision of the crashes in the US real estate and bond markets, combined with $9 trillion in uninsured deposits, which can vanish quickly in the digital age, potentially triggering a credit crunch, per Telegraph. Such crisis has led investors to look for safe-haven in the equity space. In this pursuit, tech ETFs should emerge as winners.
Layoffs to Boost Profitability?
Silicon Valley layoffs have been intense. Amazon, Meta, Twitter, Salesforce – most of the tech giants have been on layoff spree. Small-cap tech companies are also on spree of headcount reduction. Such layoffs and cost reduction may boost profitability of the tech companies.
Upbeat Earnings at Mega-Cap
Mega-cap tech stocks came up with upbeat earnings this reporting season. Facebook’s parent company Meta Platforms (META - Free Report) reported solid results, wherein it outpaced revenue and earnings estimates. The company issued upbeat revenue guidance amid the ongoing progress to bring down costs. Microsoft (MSFT - Free Report) too reported strong results, beating earnings and revenue estimates. The company also provided an upbeat outlook for its nascent artificial intelligence service. Google parent Alphabet (GOOGL - Free Report) topped both revenue and earnings estimates. The result followed two quarters of earnings disappointment.
Tech is New Normal
“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and the growing video-streaming scenario are sure to stay for long. The growing adoption and the ongoing emergence of AI, machine learning and IoT are the winning areas. Strong focus on AI techniques like ChatGPT and the home automation space should favor the technology sector.
ETFs in Focus
Against this backdrop, below we highlight a few tech ETFs that have been in momentum this year and have a lower P/E than FactSet Segment Average of 18.35X.
WisdomTree Artificial Intelligence and Innovation Fund (WTAI - Free Report)
The underlying WisdomTree Artificial Intelligence & Innovation Index identifies companies that are primarily involved in the investment theme of AI and Innovation. The fund charges 45 bps in fees.
Amplify Transformational Data Sharing ETF (BLOK - Free Report)
The Amplify Transformational Data Sharing ETF is an actively managed ETF that seeks to provide total return by investing at least 80% of its net assets in the equity securities of companies actively involved in the development and utilization of transformational data sharing technologies. The fund charges 71 bps in fees.
ProShares Big Data Refiners ETF (DAT - Free Report)
The underlying FactSet Big Data Refiners Index tracks the performance of companies that provide analytics, software, hardware and other computing infrastructure for managing and extracting information from large structured and unstructured datasets. The fund charges 58 bps in fees.
ProShares S&P Technology Dividend Aristocrats ETF (TDV - Free Report)
The underlying S&P Technology Dividend Aristocrats Index targets companies from information technology, internet and direct marketing retail, interactive home entertainment, and interactive media and services segments of the economy. The fund charges 45 bps in fees.
ProShares Metaverse ETF (VERS - Free Report)
The underlying Solactive Metaverse Theme Index consists of companies that provide innovative technologies to offer products and services around the Metaverse. The fund charges 58 bps in fees.
Invesco PHLX Semiconductor ETF (SOXQ - Free Report)
The underlying PHLX Semiconductor Sector Index measures the performance of the 30 largest U.S.-listed securities of companies engaged in the semiconductor business. The fund charges 19 bps in fees.