Is It Worth It to Invest In Tech Right Now?

Even the technology industry isn’t immune to inflation and economic recession, as stocks for many businesses in the tech sector have performed poorly in 2022. The sudden drop in high-growth stocks for big names like Amazon, Microsoft, Meta and Netflix has raised concerns about their long-term value.

Is it worth investing in tech right now? Here’s what on-the-fence investors should know about current tech investment opportunities.

Reasons to Invest

Despite the tech industry’s disturbing regression in the stock market, CEOs and market analysts see the trend as a temporary shake-out. The big players in tech are more relevant than ever, but changing investor demographics and behaviors are the main causes of the downturn.

Many new investors have entered the stock market since 2020, the predominant demographic being inexperienced high school and college students. This generation of investors is far more interested in technology than previous groups of investors. For example, the hype surrounding NFTs and obscure forms of cryptocurrency largely came from the 18-25 age group.

The heightened enthusiasm for tech stocks would be great in a stable economy, but we’re not in a stable economy. Young investors aren’t making the quick returns they want on tech stocks, which means they’re dumping them early and contributing to the drop in prices.

Analysts believe that tech stocks will partially restabilize once young people start to develop balanced portfolios and treat stocks as long-term investments more than trends.

Aside from changing investor behaviors, high inflation and interest rates are largely to blame for the stock market’s poor overall performance. The problem isn’t the tech industry, but the unstable environment surrounding it. 

Analysts fully expect many small to medium-sized tech stocks to never recover, with some companies already doing major layoffs. Companies that saw massive growth during the pandemic like Peloton and Robinhood are also in jeopardy.

However, they believe the “big guys” – namely Amazon, Google, Microsoft, Meta and Tesla – will be just fine and continue to yield great long-term returns once the economy comes back down to earth. After all, the world isn’t going to stop digitizing. The leaders in technological advancement in Silicon Valley won’t disappear because of a recession or stock market fiasco.

Reasons Not to Invest

There is one problem with market analysts’ optimism about tech stocks: a significant fall doesn’t guarantee a significant recovery. The aforementioned big guys might be established enough to survive the current economic turmoil, but that doesn’t mean they will return to their expected potential.

We’ve seen stocks with high potential fizzle out before. The most memorable examples are Pets.com’s sudden rise and fall in 2000 and eBay’s remarkable drop despite competing with other e-commerce companies like Amazon for years. A stock is never a guarantee, no matter how enticing it may appear. 

There is another obvious reason that tech stocks – or any stocks for that matter – might not yield the desired returns. Inflation and interest rates continue to climb. Even the big guys are losing money, while the average investor has less money to devote to their stock portfolios. 

The Federal Reserve has made it clear that it will continue to raise interest rates to combat inflation and restabilize the economy. Nobody on Wall Street knows when the cycle will end. Despite market analysts’ optimism, the stock market volatility shows no signs of slowing in 2022 and 2023.

When commercials and advertisements used the phrase “in these unprecedented times,” they weren’t kidding. We’ve had pandemics and recessions before, but the record-high interest rates, inflation and changing investor behaviors have created a perfect storm wherein anything can happen. 

Buy With Caution

With many young investors overreacting to the stock market downturn, you might be able to buy low on tech stock and get impressive returns if the market restabilizes. However, the key word is “if.” Every investment is a gamble in this economy, as one wrong move can ruin your portfolio. 

Now more than ever, the best course of action is to buy with caution. Think about potential long-term returns, not how much you can squeeze out of the stock in the short term.

Disclaimer: Nothing in this article constitutes professional investment advice. Please do your own thorough research before making any investment decisions.