Technology stocks have suffered a massive sell-off in 2022. With investors going into ‘risk-off’ mode on the back of inflation, rising interest rates, and the Russia-Ukraine crisis, many tech shares have fallen by 50%, or more.
Is this an opportunity? Tech analyst Dan Ives of Wedbush Securities certainly thinks so. In a recent research note, he wrote that we’re now seeing a “generational buying opportunity” in the technology sector. Let’s take a look at Ives’ comments in more detail.
A buying opportunity in tech
His view on the 2022 tech sell-off is that we’re not currently experiencing another dot-com-bubble-type crash. Instead, he believes it’s a “massive over correction” in a higher interest rate environment. Speaking on CNBC last week, Ives said that valuation levels relative to growth in the technology sector are now attractive.
However, Ives also stressed that it’s crucial to invest in the ‘right’ tech stocks. In his view, the sector is likely to be divided in two, with the ‘haves’ and the ‘have nots’. He said that it’s important to separate the froth from the names that will be able to navigate the challenging economic environment as there will be many tech companies that don’t make it in the long run.
As for some technology stocks Ives likes the look of right now, he named Apple and Microsoft as top large-cap picks. He also listed a selection of cybersecurity stocks, value tech stocks, and electric vehicle (EV) stocks (including Tesla) that he’s bullish on at present.
My take on tech stocks now
As for my take on the tech sell-off, I agree with Ives’ view that it has created a great buying opportunity. I wouldn’t necessarily call it a ‘generational’ opportunity, as the technology sector does tend to have regular sell-offs. For example, we also saw massive downward movement in the sector in late 2018 and early 2020.
However, for long-term investors like myself, I think it’s a good time to be nibbling on tech stocks. I’ve certainly been buying them for my own portfolio. For instance, I’ve recently added more shares in Microsoft, Alphabet (Google), and Nvidia. To my mind, these stocks have attractive valuations relative to the growth they are generating and their long-term prospects.
I also agree with Ives’ view that it’s important to focus on high quality. There will be plenty of tech names that survive the current meltdown and do well for investors in the years ahead. Those that are profitable and have strong competitive advantages should have a good chance of survival.
However, there will also be plenty that don’t make it. Those that have business models that are easy to replicate (e.g. crypto miners), and those that have poor balance sheets and no earnings for the foreseeable future (e.g. some of the smaller EV stocks) could be at risk of falling away.
So when looking for tech stocks for my own portfolio, I’m going to focus on high-quality businesses that are as close to being guaranteed to be around in five or 10 years’ time as possible.