The technology sector has grown at an accelerated pace over the past few decades to become the backbone of the modern economy. We’ve come a long way since the dot com bubble in the early 2000s, with the invention of smartphones, high-performance laptops, cloud computing services, and social media platforms.
Investors have historically remained bullish on the technology sector over the past decade. This is evidenced by the Technology Select Sector SPDR (AMEX: XLK) ETF’s 583.18% returns over the past ten years, while the benchmark S&P 500 Index (AMEX: SPY) has gained 266.3% over this period. Comparatively, the tech-savvy Nasdaq 100 index surged 404.7% over the past decade.
DataTrek co-founder Nicholas Colas expects the stock market to be driven primarily by technological innovation over the next 20 years. The rising productivity due to technological innovation should allow companies operating in various sectors to witness a robust rise in their profit margins, which, in turn, is expected to boost the share prices of publicly-traded companies further.
Here are some trends that will shape the tech sector’s performance this year:
Wide-Scale adoption of hybrid work models
Remote working gained traction during the initial days of the pandemic, as countries around the globe announced strict lockdowns and social distancing rules. However, the impact of the total lockdown was mitigated by the adoption of work-from-home structures facilitated by platforms such as Zoom (NASDAQ: ZM), and Microsoft’s (NASDAQ: MSFT) Teams.
While tech giants were exploring a return to office policy in the second half of 2021, the rapid spread of delta and omicron coronavirus variants put these plans on hold. The companies will likely ask employees to return to the office at least partly this year as the pandemic phases out. Tech giants typically set the guidelines for such mass-scale hybrid work models, which will then trickle down to non-tech companies worldwide.
Increased Focus on Cybersecurity
It’s not surprising that cybercrime has been rising in the post covid era, as more and more people have been opting for online financial transactions. According to a CNBC report, data breaches increased 273% year-over-year in the first quarter of 2020. In the second half of 2020, the U.S. government traced a massive data breach, which affected major government departments and private sector companies.
Regarding this, Interpol Secretary General Jürgen Stock said, “Cybercriminals are developing and boosting their attacks at an alarming pace, exploiting the fear and uncertainty caused by the unstable social and economic situation created by COVID-19.”
Thus, we will see an increased demand for cybersecurity products and services in the new year. Artificial Intelligence (AI) powered cybersecurity, which identifies out-of-the-ordinary activities, will be adopted globally.
Burgeoning Metaverse
2022 is predicted to be the biggest year for metaverse, with tech companies investing heavily to develop augmented reality. To this end, Facebook, one of the biggest names in the tech and social media space, changed its name to ‘Meta’ (NASDAQ: FB) and is focusing on developing 3D virtual spaces and the next chapter of social media technology.
Big tech companies are betting on metaverse to be the biggest development in the tech space since the invention of touchscreen smartphones back in 2007. The FAAMG group is gearing up to launch hardware products that support the development of the metaverse this year.
Conclusion
The tech sector has high-risk attributes and is often subject to immense pullbacks during times of economic uncertainty and volatility. Over the past year, the tech sector witnessed several pullbacks due to macroeconomic parameters and shifting investor sentiment. However, the segment has historically outperformed the broader markets by a huge margin. With the digitization of virtually every industry, technology is poised to maintain this momentum over the long run.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
