Pick Tech Stocks Carefully
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Pick Tech Stocks Carefully

These past few weeks have been a wild ride for technology investors.

The process began last week when insurgents briefly took control of Capitol Hill and escalated when managers at Twitter, Inc. (NYSE: TWTR) decided to permanently ban President Trump from posting.

In that instant … the power wielded by big tech became crystal clear.

Within a day, Apple, Inc. (Nasdaq: AAPL) and Alphabet, Inc. (Nasdaq: GOOGL) pulled Parler from their smartphone app stores. The social media platform had become popular with conservatives and was viewed as a likely landing spot for the President post-Twitter.

And only hours after the app was no longer available for iPhones and Androids, Amazon.com, Inc. (Nasdaq: AMZN) announced its AWS cloud-computing business would no longer host Parler content.

On Monday, Parler managers said the business may not survive through the end of next week.

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The confluence of these events is a revelation for regulators and vengeful politicians.

I have been anticipating a secular rotation away from technology. Institutional money has been finding a home in cyclical issues parts of the economy like energy, industrials, banks and semiconductors. This is likely to continue as professional investors bet on a cyclical recovery.

Big technology — especially high-profile businesses like Apple, Alphabet, Amazon.com, Facebook, Inc. (Nasdaq: FB) and Twitter, Inc. (NYSE: TWTR) — might remain under pressure for a few more weeks, but longer-term, savvy investors will hold their shares.

In the context of the bigger picture, this short-term weakness is likely to be shallow.

While the narrative for big tech is clearly changing, investors should take a deep breath and see the bigger picture.

These stocks have had tremendous rallies. They need a correction. Worries about new regulations and political handwringing may speed the process, but it will not change the strong bullish underlying trend.


 

The sector has been rallying since 2009 on the basis of the digital transformation megatrend. All computing is moving to some form of cloud-based model with data analytics and sensors in the field collecting information.

At the same time, smart investors should be more selective about which tech stocks to target.

Investing in the businesses that dominate the key parts of that stack, from data centers like Amazon.com and Microsoft, Corp. (Nasdaq: MSFT) to sensor businesses like Lumentum Holdings Inc. (Nasdaq: LITE) and Sony Corp. (NYSE: SNE), is a winning strategy.

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The situation with Parler is troublesome. The business was essentially scuttled overnight, showing the full might of the entrenched ecosystem and its ability to demolish rivals.

However, the death of one conservative social platform will certainly not upset the bigger digital transformation story that is still reshaping various industries before our very eyes.

The long-term horizon for many big-tech companies remains stronger than ever … you just have to be smart with your selections.

Best wishes,

Jon D. Markman

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