The coronavirus scare had its most severe impact on the technology sector because most of its supply chain is in Asia, primarily China. Not only that, a big chunk of end users is also located in China.
So what could be the reason that a cross section of technology companies, particularly chip stocks reversed the trend to rise on Friday? Specifically, chip stocks NVIDIA was up 6.9%, Xilinx up 5.0%, Micron 3.9%, AMD 3.3%, Qualcomm 3.1%, KLA-Tencor 3.9%, Lam Research 2.7%, STMicroelectronics 2.4% and software stocks Microsoft was up 2.4%, Adobe up 2.3%, Google 1.9% and Facebook 1.4%.
As far as chip stocks are concerned, the dependence on Southeast Asia is near complete. So it’s almost unfathomable that they should rise again. Especially since stocks like AMD (up 94.6% over the past year), LRCX (up 65.0%), NVDA (72.2%), KLAC (31.7%), QCOM (45.6%), MSFT (44.3%), ADBE (33.7%) aren’t exactly going cheap. The S&P advanced just 5.0 during the same period.
There can only be a couple of explanations.
First among these is the secular trend of technology getting into practically everything we use through IoT, smart home devices, fitness trackers, online ordering platforms, banking systems and a host of other things, including of course our smartphones and work devices. And it’s doing this through semiconductors and software that are increasingly getting embedded everywhere.
So this is a secular trend that most experts perceive will go on for years on end. Since it’s hard to put a value to this, technology stocks, particularly these categories, can have a certain buoyancy to them.
Second reason is the exponential growth in cloud computing, which is another secular trend, this time on the corporate/enterprise side. While deployment will get more stringent as we move forward with increased innovation and far more choice, the rising tide will lift all boats. It’s hard to be pessimistic about a market where technology consumption can only be delayed but not denied.
So while virus fears are not unfounded (the number of deaths continues to increase, both inside China and outside), there’s no reason to sell things that obviously have value. And these technology stocks are worth hanging on to.
But if at all you’re thinking about buying on weakness, consider these tech stocks, all of which have a Zacks Rank #1 (Strong Buy) rating:
Boingo Wireless, Inc. : Average 4-quarter surprise 72.8%, 2020 loss per share estimate down 2 cents in the last 60 days.
Onespan, Inc. OSPN: Average 4-quarter surprise 9.7%, 2020 EPS estimate up 3 cents in the last 60 days.
Dropbox, Inc. DBX: Average 4-quarter surprise 31.0%, 2020 EPS estimate up 15 cents in the last 60 days.
Micron Technology, Inc. MU: Average 4-quarter surprise 12.5%, 2021 EPS estimate up 18 cents in the last 60 days.
Applied Materials, Inc. AMAT: Average 4-quarter surprise 5.9%, 2020 EPS estimate up 37 cents in the last 60 days.
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