Remember the days when Large-cap tech companies came out to announce earnings and along with that came exciting new projects and initiatives that got investors all psyched up? Well, those days are certainly gone as the only thing that gets investors excited these days are how many times the word “efficiency” is used during the call.
It’s almost as though every new idea these days is assumed to be “cash-burning” hence even if someone like Zuckerberg was working on something new, he would probably keep it to himself and continue banging on cost-cutting measures.
That said, such cost-cutting measures taken by tech companies all around have certainly paid off as the NASDAQ 100 has now rebounded off its 2022 lows by about 20%. While it’s always difficult to tell if this trend would continue, I am indeed compelled to feel a little more optimistic for 2H2023 as it does seem that the worst is indeed behind us. All in all, we are starting to see opportunities emerge despite near-term headwinds.
In this article, we’ll explore 3 reasons why I think tech has outperformed the market this year along with my technical outlook for the NASDAQ 100 moving forward.
Recent Tech News (In a Nutshell)
Much has happened within the tech industry this year from the SVB banking crisis to the layoffs which never seem to end. To give readers some context as to what’s happening, here are some of the latest news this April 2023 that I’ve gathered.
- Earnings continue to be resilient. Amazon, Microsoft and Google reported earnings last week and markets reacted well with the NASDAQ 100 closing at resistance.
- AI continues to be more than a buzzword. Stocks ending with .AI spiked due to the hype (eg: C3.AI etc.) however, it would seem that companies that are doing legitimate work with generative AI are indeed getting the attention of investors.
- There is now a Changiverse on Roblox…
- Tech Layoffs continue in April 2023,
- Clubhouse – More than 50% of Staff (est. 50+ employees)
- Dropbox – 16% (500 employees)
- Amazon – 9000 employees
- Lyft – 26% (1072 employees)
- Meta – 10,000 Employees (In addition to the 11,000 Employees retrenched last November)
- Microsoft + Activision Blizzard Deal was blocked in the UK, causing ATVI to crash by 12% in a single day. Observers note that the deal is not completely over, Microsoft will appeal however odds of the deal not going through is now higher. Strangely enough, notice how MSFT continues to trade higher despite news of this merger not materializing.
3 Qualitative Reasons why I think Tech will continue to Outperform
1. Interest Rate Expectations
We are now at a point where I’m compelled to believe that the market feels “ready” for what is to come. This means that should everything continue to stay its course, the federal reserve should adopt a more dovish stance (even more so with the banking crisis) hence causing markets to rally.
As it is, unemployment remains low with a positive 2.5% GDP forecast for 1Q2023. Needless to say, markets rally in line with Fed actions hence this is my overarching “thesis” as to why tech is likely to outperform this year.
“There is an increasing sense that corporate America can cope with higher interest rates more successfully than expected, and that is attracting more buyers of stocks,” George Ball, chairman of Sanders Morris Harris, a Houston-based investment firm that manages $4.9 billion for clients, told Fortune Tuesday.
Veteran market watcher says Big Tech’s rebound has ‘run its course’—but the overall stock market could still rise to a near record high this year
2. Realistic Metaverse Expectations
I’ld like to think that in time to come, the Metaverse would have a greater impact on our day-to-day lives. As it is, we are seeing more local businesses here in Singapore such as CAG and OCBC getting on the bandwagon.
In my opinion, the tech crash of 2022 did help to propel the Metaverse forward in a way where companies now need to be more cautious of budgeting and that such projects, above all else, have to adhere to more stringent requirements to be financially sound in the sense that they must have revenue objectives and reasonable capex.
As more tech-savvy users enter the metaverse, we will likely see metaverse-related activities increase along with their adoption rates amongst companies. Ultimately, this will be one of the factors that help push the tech industry forward.
3. Artificial Intelligence will “carry” Tech
What’s interesting about AI is that it seems to be somewhat “carrying” the tech industry forward this quarter. Of all projects & initiatives proposed, Artificial Intelligence seems to be the one that can be monetized the faster and easiest. This is ultimately what investors want and steps to monetization seem to be gaining momentum as ChatGPT introduced a Professional Plan with Perks not too long ago.
Other companies are fast catching up as well with Alibaba unveiling their latest AI along with the slightly disappointing launch of Google AI chatbot Bard.
Here’s a take from UBS’ analysts:
Alphabet and Microsoft mentioned AI more than 50 times each during their first quarter earnings conference calls. We expect the broad AI hardware market to grow 20% a year to reach USD 90bn by 2025. We see AI as a horizontal technology that will have important use cases across applications and industries. From a broader perspective, AI, along with big data and cybersecurity, forms what we call the ABCs of technology. We believe these three major foundational technologies are at inflection points and should see faster adoption over the next few years as enterprises and governments increase their focus and investments in these areas.
Opportunities remain in tech, despite near-term headwinds
Will Tech’s Run Continue?
We don’t need to go too deep into the Technical Analysis here as it is clear that we are in a bull market for the Nasdaq 100 since the formation of a Golden cross early last month.
The next key resistance level that we should look out for would be the $14,000 psychological resistance level. No surprise here as back in 1Q2022, this was also an area of consolidation for the Nasdaq 100 which failed to hold as a key support level. Bearing in mind that we broke out of the channel as of market close on Friday, this implies a possible 6% rally from current levels before we reach $14,000.
Is a dealbreaker round the corner?
While I’m optimistic, I’m also keeping in mind that some major headwinds will always come about when we least expected it.
Right now, lawmakers and politicians are still debating on how the Fed was able to overlook the SVB crisis hence we never really know what would happen to change the course of this rally. That said, using the SVB crisis as an example, sure that certainly caused momentum to wither and volatility to fluctuate within the market however the Golden Cross held strong and the uptrend continued.
We’ll never know till it hits but what I can say for sure is that we’re at a much higher state of responsiveness to such events hence it would probably take the collapse of something much bigger (touch wood) to steer this tech bull off its course.
