Are Global Tech Stocks Really On Discount?

Technology companies have had a rocky time over the last year or so. In China, a series of crackdowns on large internet-based companies have led to their stock prices dipping substantially; experts cannot say for sure if they will recover in the near future.

On a global scale, the fortunes of tech companies have been far more diverse. Some have benefitted from work from home arrangements in the pandemic era, while others have suffered due to a variety of reasons.

Tech stocks took a dip in early October 2021, fuelling speculation that we could be headed for a bear market in Q4. However, this was short lived as investors rallied to the drop and prices recovered within a matter of days.

How tech stocks are really doing around the world

There has been a lot of movement in recent months going into the last quarter of 2021. So much so that it was the tech stocks that have been doing the heavy lifting in keeping stock markets up.

Here’s a quick roundup of what’s been happening to the major players in this sector:

Cloud services

Companies providing software-as-a-service (SAAS) and cloud computing services were the ones to see the majority of the early Q4 2021 drop. However, the drop in these companies’ stocks coincided with their earnings reports season which indicates that it was likely a profit taking exercise.

There may still be red flags surrounding the year end shopping period which is typically a busy season for tech companies, but supply chain issues brought on by the pandemic may still drag down earnings of tech companies.

Hardware and electronic products

Makers of physical products – such as electronic components and devices – also saw profit taking exercises by shareholders ahead of Q4 earnings announcements.

In general, the pandemic has had mostly a positive impact on tech companies involved in these industries as the global lockdown also saw stronger demand for devices and gadgets for gaming, e-commerce, home entertainment and work from home but the true impact of the pandemic on these sectors need a longer-term outlook.

Video games

Video games have become a billion-dollar industry that has paid dividends over the last two decades. Variety reported that the market is set to hit a value of $200 million by 2023.

That said, the pandemic triggered boom in games and gaming may be headed for some market correction as the gradual lifting of movement restrictions worldwide may mean consumers may have less time for gaming in the coming months and years. This may translate to lower growth projections compared to recent years, but the year-end holiday season is still a major earnings period.

Are tech stocks on discount?

Profit taking exercises made it look like there would be a downward trend at the end of September, however that didn’t last long.

Since then, investors have flocked to the discounted stocks. This flurry of activity has instead helped them to lift markets, and buoy index funds.

While tech stocks are recovering, those reliant on hardware are still lagging behind. Companies that make graphics cards and game consoles in particular still have their earnings potential limited by the global semiconductor shortage that limits their ability to meet demand. This shortage is expected to last until 2023.

If you are considering dipping your toes further into the tech stocks sector, check out Principal Asset Management’s range of investment solutions to get the exposure you want while managing risks better.

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