Technology Sector Overview for 2019: What Investors Should Know

Technology Sector Overview for 2019: What Investors Should Know
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Technology Sector Overview

It looks like 2018 will have been an overall down year for tech stocks. They’re still among the most dominant securities on the market, however. Investors are hungrily eyeing 2019, hoping that it can be a return to form for the industry.

With that in mind, here is my technology sector overview for 2019. What will the sector look like? Will the industry rebound in the coming year?

Those are hard questions to answer, since there are quite a few variables at play, but what is certain is that tech stocks still rank as some of the best long-term stocks around.

I’ll examine some of the problems facing tech in 2019, what segments of the industry excite me, and where investors will be able to find strong gains.

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Technology Sector Challenges in 2019

If the market holds, then 2018 will have been a pretty disappointing year for tech stocks, and it’s easy to see why.

Aside from the market pullback that has dropped many stock prices in the past few months by double-digit percentage points (and is no fault of the industry, but rather speaks to wider investor sentiment), tech has faced its fair share of challenges.

The most obvious ones are on the political side.

Alphabet Inc (NASDAQ:GOOG), Facebook, Inc. (NASDAQ:FB), Netflix, Inc. (NASDAQ:NFLX), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), and more were implicated in yet another privacy breach, this time surrounding Facebook’s handling of access to private messages. (Source: “As Facebook Raised a Privacy Wall, It Carved an Opening for Tech Giants,” The New York Times, December 18, 2018.)

It would be comical at this point if it weren’t so bad for investors. These tech companies are not doing a good job of ingratiating themselves with the public.

Facebook is public enemy No. 1 at the moment, but many of these once-prized stocks have all taken hits as of late.

Amazon, for instance, has sparked backlash due to its mistreatment of workers and its battle against local taxes.

You can see that some of this backlash is beginning to harm stocks, or at least, has the potential to harm.

People have of course been speaking out against these tech companies for years. But they have never had as much ammunition as they do now. Not to mention that these scandals have proliferated recently.

This makes the technology sector fraught with challenges.

The Nasdaq crash of 2018 is illustrated in the following Nasdaq-100 Index chart:

Chart courtesy of StockCharts.com

Over the past several months, we’ve seen tremendous amounts of value wiped out in some of the biggest tech stocks in the world.

Facebook took a single-day 19% hit after a weak earnings report, wiping out roughly $120.0 billion of shareholder wealth, ranking up there with the highest single-day wipeouts a company has ever faced in the history of the market.

This has as much to do with an economic slowdown as anything else.  A possible recession is truly the biggest threat I considered when compiling my technology sector overview for 2019.

Recession or no, there are still ways to make money as an investor.

Technology Stock Analysis 2018

While there are challenges facing the sector, certainly, this is still the same dominant market segment that has ruled for decades.

The largest companies, including the “FANG” stocks (Facebook, Amazon, Netflix, and Google), are still highly valuable with a lot of room for growth.

The stock chart below showcases some of the top technology stocks: Netflix stock (black line), Apple stock (blue line), Facebook stock (red line), and Alphabet stock (green line).

Chart courtesy of StockCharts.com

Remember the scandal and fallout around Volkswagen AG Preference Shares (OTCMKTS:VWAPY, ETR:VOW3)?

Volkswagen, fresh off an emissions testing scandal, saw its stock price plummet. It since gained 50% over the course of the next few years, a steady and strong gain.

Tech may very well experience a dip in value, but that could make these stocks all the more enticing. And by its very nature, I expect the gains to be larger for smart buyers compared to other industries due to the inherent volatility in tech.

So while the Nasdaq crash of 2018 has seen many stock prices fall in recent months, my technology sector overview for 2019 says that the sector may provide more opportunities, in what are sure to be great stocks for years to come—at bargain prices—as long as you can weather some turmoil in the interim.

Tech Sectors That Could Grow in 2019

There are two things I think investors ought to focus on come 2019: processing chips and initial public offerings (IPOs).

The chip industry is looking to be one of the stronger ones in my technology sector overview for 2019.

While the two main competitors in this space—NVIDIA Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD)—were not immune to the collapse to end 2018, they both still have a lot of room to grow moving forward.

Chart courtesy of StockCharts.com

Both have weathered the Bitcoin bubble well, and both are likely to take advantage of the coming explosion, where more and more of these chips will be needed to power artificial intelligence (AI) and the like.

While tough times may be ahead in the case of a recession, I foresee these stocks performing well for years to come.

The next part of tech worthy of attention is all the great tech IPOs on the horizon.

From Uber Technologies Inc and Lyft battling for supremacy in the transit space to the exciting dating app Bumble Trading Inc eyeing an IPO, there are a lot of opportunities for early investors to make big money, even in a down market year.

Watch these IPOs closely to see if there’s a chance to make off with big gains when they do go public.

Tech Stock Forecast for 2019

The tech stock forecast for 2019 is, frankly, hard to make.

As I said, there’s a good chance that all the stocks that I mentioned will see their fortunes rise in a good market (as they all showed they have the ability to do this year), but if a recession sets in, pickings will be slimmer.

With that being said, almost all of those stocks have the strength to withstand a market pullback and will likely thrive on the other side, leaving the possibility open for 100% gains for those who can play the market well and hold on to the stocks through the tough times.

Analyst Take

So that’s my technology sector overview for 2019. The forecast is cloudy in terms of performance, but certain in one thing: this is still the most exciting industry in the stock market.

There’s simply no other sector that can match tech in both its growth potential and its staying power to see it through a market downturn.

Regardless of whether 2019 is a strong year for the overall stock market, tech stocks still have the potential to yield huge gains for investors who are able to take the long view.