3 Tech Stocks to Watch

Apple

Warren Buffett once referred to Apple as “probably the best business I know in the world”, and it’s difficult to dispute this. Indeed, the technology giant currently accounts for over 40% of Buffett’s Berkshire Hathaway portfolio.

Apple’s business model is simple. It generates revenue through the production and sale of a variety of goods and services. However, what gives it its competitive edge is its ultra-high degree of brand loyalty from consumers who seemingly can’t get enough Apple products.

Every new release from Apple is eagerly anticipated by customers, many of whom buy the company’s latest gadgets with little hesitation.

It’s this kind of loyalty which makes Apple one of the most profitable companies on the planet. In the year ended 24 September 2022, Apple generated $99 billion in net income, more than the total Gross Domestic Product of many small countries.

Despite its robust fundamentals, Apple did not escape the market downturn in 2022, with share price falling 18% by 13 December.

The iPhone producer faces the same headwinds as the rest of the industry entering 2023 but, as noted, should be able to continue relying on a fairly consistent level of demand for its products and services.

One issue which has been highlighted recently is Apple’s over-reliance on China, where the majority of its products are manufactured. This led to iPhone supply issues towards the end of 2022 caused by strict Covid measures and social unrest. However, Apple is working on diversifying its supply chain and has already starting moving some production to India.

Meta Platforms

To be completely frank, the newly christened Meta Platforms had an absolutely atrocious 2022, with share price plunging 64% by 13 December.

As well as being caught up in wider stock market troubles, a couple of individual issues also weighed heavily on Meta Platforms. Firstly, in February, Facebook lost daily active users for the first time ever, which spooked investors.

Secondly, throughout the year, it began to become apparent just how much money Meta is pumping into the metaverse. In the first nine months of 2022, Reality Labs – the company’s metaverse division – lost $9.4 billion, compared to $10 billion the previous year. In the climate of economic uncertainty, this high level of spending with little to show for it was viewed very negatively by investors.

Given the amount of money sunk into the metaverse, many have speculated that Meta Platform’s future success is tied to that of the metaverse. Whilst there may be some validity to that statement, it is not the whole truth.

In the third quarter of 2022, Meta Platforms reported that, across its family of popular applications, it had 3.71 billion monthly active users and 2.93 billion daily active users. That is a lot of people. To put those figures into context, in Twitter’s last results before going private, it reported 237.8 million daily users.

Due to fears of a potential recession, companies slashed advertising budgets in 2022, straining Meta’s main source of revenue. Whilst the economic outlook remains uncertain, this is likely to continue to be an issue.

However, the sheer size of Meta’s audience makes it a unique advertising space amongst social media platforms. This means that when the economic outlook improves, advertising revenue is likely return, improving sentiment around Meta stock.

MercadoLibre

Whilst you will definitely have heard of the first two tech stocks on our list, unless you’ve spent time in Latin America, you may not have heard of the third.

MercadoLibre, often dubbed the “Amazon of Latin America”, is a far smaller technology stock, but is present in 18 countries and dominates the e-commerce markets in three of the largest economies of the region - Mexico, Brazil and Argentina.

Latin America has a population of around 660 million people, making it one of the world’s largest market places. Furthermore, the penetration of e-commerce in the region is still relatively low, estimated to account for just over 7% of total retail sales in 2023. So, MercadoLibre’s e-commerce business still has plenty of room to grow.

Like Amazon, MercadoLibre is far more than simply an e-commerce stock. Its payment processing arm, MercadoPago, is thriving in a region where many remain unbanked and rely on such services to make essential payments.

Furthermore, their low-cost QR code transactions allow anybody without a bank account to settle payments digitally using a smart phone, allowing merchants without card infrastructure to accept non-cash payments. This is incredibly practical for a region where its estimated that more than half the population works in the informal economy.

As well as payment processing, the company runs a logistics service, Mercado Envios, and a fairly young lending business, Mercado Credito.

High inflation and rising interest rates have conspired to push MercadoLibre stock lower in 2022, with share price falling 35% by 13 December 2022. However, despite a falling share price, the tech stock keeps pumping out impressive results, continuing to grow despite the economic headwinds it faces.

In the first nine months of 2022, MercadoLibre reported 127 million active users, gross merchandise volume of $24.8 billion and total payment volume of $87.6 billion, year on year increases of 6%, 22% and 65% respectively. Furthermore, over the same timeframe, its gross profit soared 72% to $3.7 billion.

However, despite the impressive growth, MercadoLibre faces serious challenges going into 2023. With high inflation and rising interest rates squeezing discretionary income, it’s possible this will affect the company’s revenue. This is particularly true in MercadoLibre’s domestic market, Argentina, where rampant inflation hit 92% in the 12 months leading up to November 2022.