Tech is a sector that has been performing exceptionally well in recent years. The Nasdaq index is where most of the large tech names have their primary listings. It has tripled in value over the past five years. By contrast, the FTSE 100 has risen by 3% over this same period. So if I was thinking about investing £5k in top tech stocks at the moment, here’s what I’d do.
Sticking with the big guns
Firstly, there’s no getting away from the tech giants that dominate when you look at market capitalisation. A good measurement here is that there are currently five companies in the world that have a value above £1trn. Four of these are tech companies.
I’d definitely allocate some of my £5k to these top tech stocks, namely Apple, Microsoft, Alphabet and Amazon. These companies are popular for a reason. The customer base, the product set and the hold on the market that these stocks have is clear. Even though growth in coming years will likely be slower than the past (due to the size of the companies), I still think having funds in these shares is the way to go.
The potential risk is that these stocks are overvalued. Yet I think this can be applied to the entire tech industry. To a certain extent, it’s something that I just need to accept and live with. These same stocks were being flagged up pre-pandemic as being overvalued. Since then, the shares have continued to rise.
Investing in specific top tech stocks
With the rest of my £5k, I’d focus on different themes that I believe in. These include the metaverse, cybersecurity and electric vehicles (EVs).
The metaverse is the virtual reality that’s being brought to life by various businesses. I think that any stock that’s related to this area (either directly or indirectly) is worth considering. The potential growth of this virtual reality is huge. It ranges from education to gaming, sport and much more.
Cybersecurity is another area that I’d pick top tech stocks for. With our increasing reliance on the internet, hacking is very lucrative. Therefore, I think companies that offer protection could do well in the future.
Finally, EVs. Although I’ve been a vocal critic of Tesla, I do think there’s value in this sub-sector. The tech that’s going into these vehicles is incredible. I’d prefer to invest in relative newcomers such as Lucid Motors and Rivian.
Allocating funds for potential further growth
I’ll need to be mindful of the high volatility that comes with such stocks. Ultimately, in the pursuit of higher returns, I have to accept this.
Overall, I’d allocate £2k to the large established tech names. For the remaining £3k, I’d split it between the three sectors mentioned above. I feel that this gives me a diversified mix of companies even under the same umbrella of tech.