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Tech stocks are still trading below their all-time high, but the trend seems to be reversing.
Analysts say the market has become increasingly bullish on the technology companies that have outperformed the market over the past three years.
“Technology stocks have been a great place to hold stocks and a great opportunity to take advantage of low volatility and high earnings growth,” said David Kocher, founder of Capital Economics.
The top tech stocks are also being traded at lower valuations compared to the broader market, which is the focus of investors’ concerns.
“The tech bubble, as we see it, is now back,” said Kochel.
“Companies have seen very high valuations and the market is clearly bullish on them.”
That’s the view of Brian Schulz, senior analyst at Bespoke Investment Group.
“This is a very healthy time to be holding tech stocks.
The companies are growing at a very good clip,” he said.
“I think the market will take some risks on the stocks.”
Tech stocks surged during the financial crisis, but have since seen a decline in earnings growth.
The market’s bullishness has led some investors to trade stocks at inflated valuations, putting their money at risk.
“When it comes to tech stocks, there’s not much upside in the market at all,” said Brian O’Donnell, a portfolio manager at O’Connor Asset Management.
“It’s basically like owning an asset class that is not worth much.”
Tech companies that outperformed in the past few years, such as Facebook, Twitter, Netflix, Amazon and Apple, are all now undervalued by as much as 30% in value.
“What this really shows is that valuations are still very low, which may not be good for investors or the stock market,” said Schulz.
The U.S. tech market has experienced some of the worst trading in history in recent months, and it’s likely to get worse in the near future.
Last week, stock futures dropped below $4,200, down from a high of $6,100 a few months ago.
That’s partly because of the ongoing fallout from the global financial crisis and the recent elections in the United States.
The tech bubble was created by the likes of Facebook, Google and Amazon, but it’s not clear that the market’s current valuation is sustainable.
The stock market is up about 8% in 2017, but analysts expect the market to continue rising this year.
“Tech is still a very risky asset class to own, but we’re starting to see some gains in the tech sector, particularly in the healthcare and technology sectors,” said O’Connell.
“People should be holding on to stocks.
There’s a lot of upside in tech, and the downside is that the bubble is coming down.”