What future for tech stocks?

Technology aims to bring efficient solutions to stringent societal problems and improve the standard of living for the general population. The critical issue with modern technology is its sustainability. Therefore, the lifespan of many products is short and every now and then, a new generation of solutions is coming into the market. Are tech investors paying multiple times for the same thing?    

Like in every other walk of life, there are cycles, trends, and fashions in the world of computer sciences. Several decades ago, languages like Cobol, Basic or C were empowering the software of those times. Technology trends are changing fast, and the propensity of tech specialists towards novelty is high. Therefore, digital solutions tend to become obsolete relatively quickly.  

The first websites of the “dotcom” era would currently be a laughing stock. Platforms like “Geocities” or “Angelfire” are long forgotten, being replaced by Google. Technological trends change at a fast pace, and solutions have a high turnover. Therefore, the market pays regularly for new solutions for the same set of problems, thereby ignoring the old ones.  

The way tech operates is far from being sustainable, and tech shares have in many aspects features of commodities. Tech companies offer consumers access to intelligence, both human and artificial. Intelligence is the main resource that drives innovation as well as product.

There are still many open questions related to whether the market values correctly the right to access intelligence.

IQ is a commodity, data is a commodity. I'm far more interested in watching people interact at a restaurant with their smartphone. We can all read 'Tech Crunch,' 'Ad Age.' I would rather be living in the trenches. I would rather be going to Whole Foods in Columbus Circle to watch people shop with their smartphones. Gary Vaynerchuk, Belarusian-American entrepreneur, author, speaker, and Internet personality

Market overview

While hyperinflation ravages the labour and consumers’ prices, the biggest unknown is the Fed’s future attitude with respect to its monetary policy. The market is expecting in March aggressive hikes in U.S. interest rates. Common forecasts indicate a boost of .25%, while more others indicate that a .50% is conceivable. The US Core PCE Prices index climbed in December to its highest level since the early 1980s, triggering an alert about the irreversibility of the inflationary phenomenon.  Jerome Powell, Fed’s Chairman, underlined that if inflation gets out of control and degenerates in an inflationary spiral, his institution would take all necessary actions.

Markets delivered strong returns in the last trading session of the week amid an overall bearish sentiment anticipating the coming hike in interest rates.

Focus:

Apple

Friday was a big day for Apple, its share gaining more than 7%. Apple announced to investors all-time record revenue of  USD 123.9 billion, 11% up from 2020 and higher than analysts’ average estimate of USD 118.7 billion. The strong message is that the iPhone producers managed to deal with the global chip shortage. This could signal that the unsatisfied demand for electronic components may be curbed and prices may stabilise over the next 12 months.

Focus:

UiPath

UiPath share price continues its decline since the flamboyant listing of the Bucarest-based tech giant. Robotic process automation is a field with enormous growth potential, and UiPath is one of the key players in this market. Moreover, the firm has a stable client base and a significant advantage in terms of experience and revenue management compared to its competitors. So, why do investors see things otherwise?

UiPath lost almost half of its value since its IPO because the market questioned its scalability and capacity to deliver growth. But, these are common issues for all software companies. Most probably, UiPath is undervalued, and the outlook should be more favourable than reflected by its price.

Focus:

RobinHood

In 2021, RobinHood was Wall Street’s sweetheart and Silicon Valley’s rising star.  Since its peak record in August last year, Robinhood shares have lost sixfold their value. Forever the company lost more than USD 3 billion and over USD 420 million in the last quarter. With total revenues above USD 1.9 billion, the trading platform has definitely conspicuous traction.

Nevertheless, investors are questioning its long term profitability.  The only possible exit at this stage seems to be a takeover from a bigger brokerage firm.

Commodities:

Oil

In the early days of the Omicron wave, oil prices had a greyish outlook. Lockdowns and a decrease in global travel were only a few factors that contributed to below USD 70 crude prices. In only five weeks, the situation changed dramatically, and oil is surfing on abullish wave.
Omicron is a game changer for the oil market, because it made COVID-19 to become endemic and marked the beginning of a new period where people will cohabitate with the virus. Thus, the fundamentals for oil consumption are in the green, while the supply is more volatile than ever.

If tensions between Russia and Ukraine burst into a military conflict, oil price could easily skyrocket to USD 100 and OPEC may not be able or want to supplement the production to stabilise prices.

Market outlook

The Dow Jones Index stopped its decline and ended the week on a positive note, finding support at 34,700. The recent announcement of the Fed about a massive hike in interest rate could  mark the beginning of a structural market decline and could trigger a massive sell-off across all equity markets.

Bitcoin ended the week near USD 38,000, recovering slightly from the losses recorded in January. The correction should continue, and Bitcoin could test the USD 30,000 level over the next month.

The Gold ounce slipped last week, closing below USD 1,800 because the stock market was slightly more optimistic. The foreseeable market contraction and the inflationary context are good arguments for a rally in gold prices.