For much of the last decade, ‘Big Tech’ has been the place to be in the stock market. I really couldn’t go wrong owning the mega-cap technology stocks, as they all rose consistently. In 2020, for instance, the five ‘FAANG’ stocks, Facebook (now Meta), Apple, Amazon, Netflix, and Google (now Alphabet) rose 33%, 81%, 76%, 67%, and 31% respectively.
However, recently, the Big Tech trade has broken down in a big way. Not only have these stocks taken a big hit, but their performances have diverged massively. For example, Apple is down 15% year to date, while Meta is down nearly 70%.
So what should I do now? Is it game over for these stocks, or does this space still offer opportunities for a long-term investor like myself?
FAANG performance over the last year. Source: Google Finance
The world is becoming more digital
Taking a step back for a minute and looking at big picture trends in the world today, I’m still convinced this area of the market has a lot of investment potential. The world is becoming more digitalised every day. And this trend is only likely to accelerate going forward.
Looking ahead, a lot of the industries that the mega-cap tech companies operate in are projected to grow significantly over the next decade. Cloud computing, for example, is projected to grow by around 16% a year between now and 2030. Meanwhile, the e-commerce and mobile payments markets are expected to grow by around 11% and 35% respectively over this period.
Given this kind of market growth, I think it’s likely that revenues and earnings within the large-cap technology space will continue to rise over time.
I’m still buying Big Tech stocks for my portfolio
So I’m going to keep adding to the mega-cap tech stocks I own. My top pick at the moment is probably Microsoft. It has recurring revenues so it’s a little more defensive than some of the others. Meanwhile, it’s a major player in the cloud. I plan to buy some more shares soon.
I also like Alphabet today. It offers exposure to streaming, cloud, artificial intelligence (AI), self-driving cars, biotechnology and more, so I see a lot of potential. It also has a very reasonable valuation. I took the opportunity to buy more shares recently.
Amazon and Apple are the other two tech giants I own, and I plan to buy more as I grow my portfolio. The former offers exposure to e-commerce, cloud, self-driving cars and AI, while the latter offers exposure to smartphones, electronic payments, digital healthcare and more.
All of these companies have strong competitive advantages, powerful brands (Apple, Google, Amazon, and Microsoft are the four most valuable brands in the world, according to Kantar BrandZ), and strong balance sheets. In other words, they’re quality companies.
A long-term play
OK, these stocks have had an amazing run over the last decade, so a multi-year period of consolidation could lie ahead. There could even be further downside in the near term if interest rates keep rising.
I‘d be ok with that as I have a 10+ year time horizon. I’d be happy to accumulate at today’s prices for a few years and build up sizeable positions while prices are low.
I’m confident that in the long run, such stocks will go higher.
The post Big Tech stocks like Amazon and Alphabet have tanked. Here’s what I’m doing now appeared first on The Motley Fool UK.
6 shares that we think could be the biggest winners of the stock market crash
The hotshot analysts at The Motley Fool UK’s flagship share-tipping service Share Advisor have just unveiled what they think could be the six best buys for investors right now.
And while timing isn’t everything, the average return of their previous stock picks shows that it could pay to get in early on their best ideas – particularly in this current climate!
What’s more, all six ‘Best Buys Now’ are available to access right now, in just a few clicks.
Learn more
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
FTSE 250 bear market: 1 stock I bought on the dip
With almost no savings at 30, I’d use the Warren Buffett method to try to get rich!
How to invest £20k in an ISA in 2023 to capitalise on the stock market rally
UK shares: here’s what can be done with a £1,000 lump sum
How to make £29,800 in passive income by investing £500 a month in stocks
Ed Sheldon has positions in Alphabet (C shares), Amazon, Apple, and Microsoft. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Microsoft. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.