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Tech Stocks are Back: ETFs in Focus

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Wall Street delivered downbeat performances last week due to rising rates. The tech-heavy Nasdaq Composite, which tumbled for the third successive week — the first time since December (per CNBC) — suffered the most among the three key U.S. equity gauges. Notably, Nasdaq is down 4.6% in the past month.

There has been no respite on the rate front to start this week, as benchmark U.S. Treasury yields surged to a 16-year high. However, this couldn't prevent tech stocks from staging a recovery. The tech-heavy Nasdaq Composite snapped its four-day losing streak.

A host of tech companies gained ground despite uncertainty surrounding the economy and a hawkish mood over the Fed's interest rate policy. HSBC hiked Nvidia’s (NVDA - Free Report) price target ahead of earnings, seeing 80% upside potential. No wonder, the NVDA stock is up more than 200% so far this year, including an 8.5% jump on Monday.

Tesla (TSLA - Free Report) gained more than 7% after Baird Equity Research added the stock to its "best ideas" list, citing the launch of Cybertruck, wider adoption of self-driving features and new markets as the likely drivers. Cybersecurity giant Palo Alto Networks (PANW - Free Report) advanced about 15%, helped by earnings beat last week. Zoom Video Communications Inc. (ZM - Free Report) was up 1.5% on Aug 21, but added about 3.8% after hours on earnings strength.

What Lies Ahead?

Investors must have digested the fact that the era of free disinflationary forces from rapidly falling energy prices, cooling food price inflation and easing core goods inflation is now ending. From here, rates are likely to stay high.

Both Tech & Higher Rates Are 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 of digitization is the winning area. Meanwhile, rates are likely to remain higher for longer. So, tech investing is no more just growth investing (which thrives in a low-rate environment). Tech investing is going to be quality investing now.

Then, there is the AI boom. This year’s stock market rally has been powered by AI euphoria and better-than-expected corporate earnings. And this is just the beginning. Dan Ives of Wedbush Securities believes that there will be a trillion dollars of additional spend over the next decade in the AI sector.

AI has persistently flooded every sector of the society. From healthcare to transportation, entertainment to cybersecurity, AI has left its presence in every industry (read: 3 Factors Why AI Boom Is Here to Stay: ETFs in Focus).

The AI market is thriving with deals and partnerships. Nvidia itself has been entering into numerous partnerships in the AI space. The companies that are collaborating with Nvidia are Amazon, Adobe, Google Cloud, Microsoft, Snowflake and AT&T.

Then there is the banking sector’s weakness. Half of America's banks are at risk of insolvency due to the collision of the crashes in the U.S. real estate and bond markets. Such crisis, if at all it happens, might lead investors to look for a safe haven in the equity space. In this pursuit, tech ETFs should emerge as winners.

ETFs in Focus

Against this backdrop, below we highlight a few tech ETFs that have lost the least in the past one month.

Roundhill IO Digital Infrastructure ETF – down 2.3% Past Month

ETFMG Prime Cyber Security ETFMG Prime Cyber Security Fund (HACK - Free Report) – down 2.7%

First Trust Cloud Computing ETF (SKYY - Free Report) – down 3.7%

First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) – down 3.8%

SPDR S&P Kensho Future Security ETF (FITE - Free Report) – down 4%

Invesco Dynamic Networking ETF – down 4.2%

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