Tesla Spike Staggering; Here Are Other Technology Areas That Could Rise

Why the Tesla Spike Supports the Excitement of Tech Investing

Technology stocks continue to lead the broader stock market higher this year. The momentum has been impressive.

My initial target of 9,500 for the Nasdaq has already been surpassed, and there are still nearly 11 months to go in 2020. The technology sector will likely continue to outperform.

Something happened recently that reminded me of the tech meltdown in 2000, which happened after technology stocks ridiculously spiked.

On February 4, Tesla Inc (NASDAQ:TSLA) jumped to a record $968.99. That was a double in share price in just over a month, and an incredible run-up from $177.00 in June 2019.

A Tesla stock bull even suggested a whopping $7,000 price target within five years.

Someone superimposed the TSLA stock chart on the Bitcoin chart during its meteoric rise, and it looks similar. We all know what happened to Bitcoin after its rise. I’m not saying Tesla stock will tank, but keep this possibility in mind.

Chart courtesy of StockCharts.com

So, while I’m bullish on the technology sector from a risk/reward perspective, I’m also realistic in my outlook.

The Nasdaq already went up about 6.6% in about 26 trading days. That represents an annualized return of 65%. I wouldn’t bet on this happening again soon, so clearly we will see adjustments.

Chart courtesy of StockCharts.com

The moves in the Nasdaq and S&P 500 have been helped by the mega-cap technology stocks, such as the FAANG stocks: Facebook, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Netflix Inc (NASDAQ:NFLX), and Alphabet Inc (NASDAQ:GOOG)—previously known as Google.

You should also add Tesla and Microsoft Corporation (NASDAQ:MSFT) in that group.

Technology Areas With Major Tailwinds

Within the technology sector, there are numerous areas that provide investors with the potential for strong returns.

The mobile payment space has been on fire. The ETFMG Prime Mobile Payments ETF (NYSEARCA:IPAY) is up 7.9% this year, outperforming the Nasdaq. This ETF tracks the Prime Mobile Payments Index.

Holdings include PayPal Holdings Inc (NASDAQ:PYPL), Square Inc (NYSE:SQ), and FleetCor Technologies, Inc. (NYSE:FLT).

Chart courtesy of StockCharts.com

The First Trust Indxx NextG ETF (NASDAQ:NXTG) is a play on next-generation technologies, including 5G . This ETF tracks the Indxx 5G & NextG Thematic Index.

Top holdings include Arista Networks Inc (NYSE:ANET), Intel Corporation (NASDAQ:INTC), and Advanced Micro Devices, Inc. (NASDAQ:AMD).

The First Trust Indxx NextG ETF has been underperforming the Nasdaq this year, but it has the ability to return big gains.

Chart courtesy of StockCharts.com

A third technology area that promises superior market potential is the Internet of Things (IoT), which will see a big push with the move toward 5G tech.

The Global X Internet of Things ETF (NASDAQ:SNSR) is an ideal play on the IoT space. This ETF invests in the Indxx Global Internet of Things Thematic Index.

Companies in this index are involved in key growth areas including autonomous driving, wearables, home automation, and industrial automation. You will find many chipmakers in this ETF.

Companies include STMicroelectronics NV (NYSE:STM), Skyworks Solutions Inc (NASDAQ:SWKS), and Cypress Semiconductor Corporation (NASDAQ:CY).

Chart courtesy of StockCharts.com

Analyst Take

As mentioned, the recent TSLA stock price action was absolutely staggering, and it reminds us why investing in the technology sector is so appetizing.

While the situation with Tesla stock was abnormal, it clearly indicates the power of momentum when it gets behind a stock. Having a massive number of shorts in Tesla also helped fuel the surge.