The tech-heavy Nasdaq Composite has jumped more than 19% year-to-date, more than doubling the S&P 500’s 7.2% rise, boosted by stronger-than-expected earnings and cost-cutting measures from major companies. Therefore, investors could consider buying quality stock Dropbox, Inc. (DBX – Get Rating) to capitalize on the industry tailwinds.
However, the current economic scenario with high-interest rates, stubborn inflation, and the collapse of the banking sector in the US presents a set of obstacles for the tech industry. Thus, I think tech stocks Snowflake Inc. (SNOW – Get Rating) and Shift4 Payments, Inc. (FOUR – Get Rating) are best avoided.
The technology sector has remained buoyed with an unwavering commitment to innovation and relentless pursuit of digital transformation across a multitude of industries.
In addition, as per John-David Lovelock, Distinguished VP Analyst at Gartner, the momentum of digital transformation remains unhindered by macroeconomic challenges. He highlighted that IT spending will remain robust, even in countries with stagnant gross domestic product (GDP) growth and high inflation in 2023.
Gartner projects global IT spending will reach $4.6 trillion this year, a rise of 5.5% from the previous year.
However, the central bank’s aggressive stance on monetary policy, with ten rate hikes implemented since March 2022, has propelled the benchmark overnight interest rate from near-zero levels to the current range of more than 5.00%, which is a 16-year high. Higher interest rates and an uncertain macroeconomic picture could present further headwinds for the tech industry.
Furthermore, the recent collapse of the US banking sector and the risks of default on the debt ceiling has sent shockwaves through…
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