A strategist at Wells Fargo Investment Institute offers three considerations for investing in the technology sector in 2021.
The technology sector has received a lot of attention from investors over the past year as the coronavirus pandemic accelerated the shift to a digital global economy. Certain tech stocks benefitted from both consumer and business spending, as businesses used stimulus money to shore up technology infrastructure and consumers dramatically increased the amount of goods and services they order or receive online.
Thanks to those patterns and others, this sector should continue to represent a big share of economic activity in years to come, says Sameer Samana, a senior global market strategist for Wells Fargo Investment Institute.
“I’ve been impressed with the persistence of the [growth] trends in the tech sector,” Samana says. “They are proving to be durable. The sector has outperformed the S&P 500 Index for over 12 years, and we believe should continue to participate in future market gains.”
Based on findings in the Wells Fargo Investment Institute report, “Investing in post-pandemic markets, The new landscape,” Samana shares what investors should consider about tech sector investment opportunities in 2021 and beyond.
The tech sector has outperformed the S&P 500 Index for over 12 years, and we believe should continue to participate in future market gains.- SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE
Samana explains that the tech industry continues to evolve from selling hardware and other physical products to individual households and businesses to signing these customers up for subscriptions and services. As a result, we’re seeing a shift in how the tech industry makes money as well. In the past, tech companies would typically buy equipment needed to house their own data. Today, they may lease data storage from a tech company in another part of the country or the other side of the world. With that in mind, the digitization of the economy includes the:
- Shift from brick-and-mortar retail to e-commerce
- Transition of online entertainment from cable to streaming services
- Adoption of machine learning and artificial intelligence in business operations
- Reconfiguration of supply chains
- Transition to a more flexible workplace model
What a changing landscape may mean for tech stocks
Samana says to keep an eye on companies offering traditional and new ways of shopping and ordering goods and services as some employees return to offices and consumers return to more traditional ways of shopping.
“Before the pandemic, for instance, I never ordered groceries online,” Samana says. “Now, I will never go back to the physical store — but that doesn’t mean others won’t. Consumers are going to expect both options from more and more industries, which gives a level of durability to the tech trends that have emerged during the pandemic.”
A similar idea holds true for employment, as working from home could evolve into a hybrid model where workers only work in the office a few times a week. That would allow for the use of less office space, reduce the need for business travel, and automate customer service processes. As a result, businesses could reduce costs, potentially helping them improve their bottom line. And that could help their stock performance, thereby making them more appealing for investors.
What the changing technology landscape may mean for investors
The tech sector includes such a wide variety of companies that it can be hard for investors to know where to focus, or where new or future opportunities might lie. For example, an investor could be inclined to only consider consumer-focused companies because they often get the most headlines, yet overlook another potential investment opportunity such as technology companies supporting infrastructure development for businesses.
That’s why it could be beneficial to work with an advisor, who could help you navigate the latest technology trends and identify areas of growth that may not have been on your radar.
All investing involves risks including the possible loss of principal. Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions and the perception of individual issuers. Investments in equity securities are generally more volatile than other types of securities.
Risks associated with the Technology sector include increased competition from domestic and international companies, unexpected changes in demand, regulatory actions, technical problems with key products, and the departure of key members of management. Technology and Internet-related stocks, especially smaller, less-seasoned companies, tend to be more volatile than the overall market
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