Investing in stocks of mega technology remains a winning bet as the COVID-19 pandemic rages on. Shares on the so-called "FANG +" index, including colossi like Amazon (NASDAQ 🙂 and Netflix (NASDAQ :), are doing much better this year than the broader benchmark.
The NYSE FANG + TM Index () has risen more than 71% since the March dip, while over the same period the SPX has risen about 24%. Over the past 12 months, these tech stocks have delivered an 80% return.
In the future, the big question is how long this powerful move can continue and whether the coming profit season will provide enough evidence to support this optimism.
Hopes for a rapid economic recovery after coronavirus-related lockdowns and historical stimulus by the world's central banks have pushed up stocks. Still, some investors cite enough reasons to remain cautious.
These include projections for a bumpy economic recovery, setbacks in the development of a coronavirus vaccine, and uncertainty surrounding the November Presidential and Congressional elections.
When it comes to Big Tech, skeptics point out that these market fans have risen too far, too fast. Some technical analysts indicate that there will be a decline in the sector soon. It is now 19% above the 150-day moving average, an extreme level usually followed by a correction.
Despite these warnings, in the current uncertain period, most investors continue to prefer large-cap technology stocks over any other trade. Coincidentally, the products and services offered by these tech giants, from cloud computing to social networking and online shopping, have become more attractive since the global health crisis erupted. That benefit is unlikely to decrease anytime soon.
Changing Business and Consumer Needs
These companies are benefiting from shifts in business and consumer preferences in a post-coronavirus world. Major changes include local ads going online, more e-commerce for groceries and luxury items, a higher percentage of teleworkers from employees and the decrease in business travel.
Wedbush Securities, which raised its pricing target for Microsoft (NASDAQ 🙂 from $ 220 to $ 260, said in a recent comment that the home-working environment should continue to drive the company's cloud business.
"In many cases, we are seeing companies accelerate their digital transformation and cloud strategy with Microsoft by 6 to 12 months, as the prospects of a heavy external workforce for the foreseeable future are now on the map with this COVID-19 background, "said the note. .
Fund managers' preference for these megatech stocks has become so widespread that Apple (NASDAQ 🙂 now accounts for 43% of billionaire Warren Buffett's equity portfolio. His investment company Berkshire Hathaway (NYSE 🙂 has 250 million shares in the company. His stake has risen in value by $ 37 billion since March, just as the world's most successful value investor lost billions on his airline bets.
Another argument to remain positive about Big Tech is that trends such as artificial intelligence, 5G wireless technology and big data analysis will continue to support these files for years to come, even if the pandemic is contained.
These gains are also fueled by small private investors who have become active traders during the pandemic. Many stocks that are popular with ordinary investors are also often held by multi-billion dollar hedge funds, including Amazon, Microsoft and Facebook (NASDAQ :), according to a recent analysis by Goldman Sachs.
Bottom Line
Technology companies provide investors with security when other cyclical sectors are struggling to survive. With their stable earnings and potential for future growth, it is hard to see that mega tech stocks will lose their charm anytime soon.
