3 Tech Stocks to Watch in 2023
It’s no secret that 2022 was not a good year for technology stocks. After years of operating conditions ideally suited to growth, a combination of high inflation, rising interest rates and economic uncertainty hit the stock market, wreaking particular havoc in the tech sector.
After a difficult year, can we find cause for optimism in the beleaguered sector? Will tech stocks recover in 2023? And which are the top tech stocks to watch?
Table of Contents
Why Are Tech Stocks Down?
A general stock market malaise affected most industries in 2022, but technology stocks were hit particularly hard. This is due to a number of reasons.
Tech stocks are generally viewed as riskier investments when compared with companies which operate in traditionally defensive industries. When the outlook for the economy becomes uncertain, many investors tend to rotate out of riskier stocks in favour of defensive stocks.
Moreover, in order to combat high inflation, in 2022, central banks around the world began raising rates significantly for the first time since the Great Recession in 2008.
Technology stocks, and other growth stocks, tend to trade at high valuations compared to their current earnings due to the fact that the market anticipates fast growth and higher earnings in the future. However, as a dollar today is worth more than a dollar tomorrow, these expected future earnings are discounted back to today in order to determine the stock’s current value.
Interest rates play an important role in discounting future earnings. Essentially, when rates rise, future earnings become less valuable in today’s money, and share prices are adjusted accordingly. This tends to have an outsized impact on tech stocks due to typically higher expectations for future earnings.
Will Tech Stocks Recover in 2023?
This is the million dollar question. It’s important to bear in mind that, although inflation appears to be slowing down in many parts of the world, it remains at high levels historically.
Central banks are unlikely to consider lowering interest rates until inflation is back in line with their target rates of around 2%, and this won’t happen overnight. The Federal Reserve has noted that they don’t expect to begin lowering interest rates until 2024.
So, interest rates are likely to remain elevated throughout 2023. However, as this is expected, it will have already been factored into current stock market valuations. Furthermore, once higher rates begin taming inflation, sentiment is likely to improve as the prospect of lower rates becomes more likely.
The stock market might not recover completely in 2023, but it has always recovered in the long run. This means that, for those with a long-term mindset, stock market troughs can sometimes present buying opportunities.
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Tech Stocks to Watch in 2023
So, which tech stocks should we keep an eye on in 2023? In the following sections, we will take a look at the prospects of 3 technology stocks over the year ahead.
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.
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.
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.
How to Invest in Tech Stocks
With an Invest.MT5 account from Admirals, you can invest in technology stocks, including the three we have looked at in this article. Follow these steps in order to learn how to invest in tech stocks with Admirals:
- Open an Invest.MT5 account and log in to the Dashboard
- Click ‘Invest’ next to your account details to open the MetaTrader Web Terminal
- Find the symbol of the stock you want to buy in the Market Watch and drag it to the chart window to open a price chart
- Right-click on the chart, select trading and click ‘New Order’ to open an order window. Here, select the number of shares you wish to purchase before clicking ‘Buy’ to send your order to the market
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With an Invest.MT5 account from Admirals, you can buy shares in over 4,500 companies from around the world as well as more than 200 Exchange-Traded Funds (ETFs). Click the banner below to find out more:
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