In 2023, tech investors experienced a remarkable turnaround, transforming a dismal 2022 into a golden year. The Nasdaq Composite Index (COMP), which had plummeted by one-third in the previous year, surged by an impressive 43 percent, marking one of the top three performing years in the last two decades for the technology-focused benchmark US index. Despite the challenging backdrop of soaring inflation and aggressive rate-tightening measures faced by tech companies just a year ago, confidence has now resurged in the sector, igniting hopes for another year of substantial gains in 2024.
The shift in sentiment towards the tech sector is evident as investors increasingly pour capital into tech companies with the belief that further rate hikes are not imminent. Kevin Simpson, the founder of Capital Wealth Planning, highlighted the significance of a more accommodative stance from the Federal Reserve, stating, “Once you have a Fed that’s backing off…in terms of rate hikes, you can get back to the business of pricing companies properly—how much money do they make, what kind of multiple do you put on it.” This positive outlook is expected to extend into 2024.
Artificial intelligence (AI), particularly generative artificial intelligence (GenAI), emerges as a leading driver of confidence in the tech sector. Large language models (LLMs) like ChatGPT, Microsoft Copilot, and Google’s Bard showcased their value in enhancing user experience, business efficiency, and customer service throughout 2023. Nvidia Corporation, renowned for its AI and GenAI chip technology, witnessed a staggering 239 percent surge in its share price, reaching new heights and positioning itself for further growth in 2024.
Looking ahead, the momentum in AI is projected to persist, with experts emphasizing the transformative potential of AI adoption across various industries. Fidelity Investments’ sector portfolio manager, Adam Benjamin, emphasized the importance of identifying opportunities in AI adoption stages to capitalize on the sector’s growth. Franklin Templeton Investments anticipates above-market growth in the tech sector, primarily driven by the increasing demand for generative-AI applications, particularly in enterprise businesses reaching the “application” stage this year.
EY’s annual ranking of top opportunities for tech companies in 2024 underscores the significance of integrating GenAI into digital transformation strategies. As tech businesses prioritize AI at the core of their operations, they are poised to leverage emerging technologies and business models to gain a competitive edge. However, amidst macroeconomic headwinds and higher interest rates, tech firms with solid fundamentals are likely to attract greater investor attention in 2024.
While challenges loom on the horizon, such as inventory corrections and margin pressures, the tech sector’s innovation and resilience are expected to drive continued growth. Blockchain-powered applications and advancements in quantum-computing applications are poised to make significant strides, offering new avenues for tech investors to explore in 2024. For investors seeking exposure to the tech sector, exchange-traded funds like the Vanguard Information Technology ETF (VGT) provide a convenient avenue to access a diversified portfolio of US tech stocks, including industry giants like Apple, Microsoft, and NVIDIA.
