Tech stocks may continue to outperform the broader market even after COVID as digitalization & WFH improved productivity

The year 2020 was great for tech stocks as they were a part of ‘K’-shaped (uneven) economic recovery amid COVID pandemic, lockdowns, and subsequent digital theme- WFH (work from home), Zoom/Google meeting, etc; the world ran on digital mode. The digital theme in some areas like WFH, Zoom meetings increased productivity and cost savings. Thus, even after the COVID, the concept of WFH, Zoom meeting, etc. will continue, where it’s viable/feasible to save time & cost; i.e. eventually digitalization of the world improves productivity, which is the ultimate.

Although tech stocks were corrected recently amid rapid progress or herd immunity (COVID vaccinations), reopening of the economy/society coupled with China’s regulatory crackdown on their techs, the underlying volatility may be also a wonderful opportunity to buy some of the blue-chip names for short term gain or long term wealth creation.

Apple: AAPL

In 2021, Apple further surged almost +8% and made a high 150.00 in July on a report that the iPhone maker may boost production of its next model of iPhone by 20% amid increasing global demand. Apple’s market capitalization was around $2.4T (almost equivalent to India’s GDP), making it as largest publicly traded company in the world. Apple cumulatively jumped almost +183% from its Mar’20 COVID low around $53 to July’21 high of $150.

After its Q2CY21 report card on 27th July, Apple corrected to some extent and now trading around $145 as the company did not provide any guidance for Q3 amid Delta COVID mutant uncertainty, especially in Europe. Apple topped market expectations for almost all segments but refrained from sharing any specific topline (revenue) and bottom line (earnings/EPS) and indicated only double-digit revenue growth.

The market is now expecting upbeat performance by Apple in all segments (iPhone, iMac, iPod, Apple services, wearables, other home products & accessories). Thus any correction towards $130-120 may be a great opportunity to enter into a great business model and brand like Apple, which may scale $200 by 2022. But chip shortage issues (supply chain disruption) may be also a risk for the stock price.

Amazon: AMZN

Amazon is another beneficiary of COVID due to its online business model, door delivery of both essential and non-essential goods & services despite offline (physical stores) disruptions as online stores are the main source of revenue. Amazon made a COVID low around $1626 in Mar’20 and eventually made a new lifetime high of $3773 in July’21; a cumulative gain of almost +132%.

Amazon’s products include products and contents that it purchases for resale from vendors and those offered by 3rd party sellers. Amazon also creations and sells various electronic devices, including Kindle, Fire tablet, Fire TV, Echo, Ring, and other devices and it develops and produces media content. Amazon mainly functions through three verticals: North America, Amazon Web Services (AWS), and International.

AWS offers a set of technology services, including data storage, database analytics, and AI application. Additionally, Amazon provides services, such as advertising to sellers, vendors, publishers, authors, and others, through programs such as AWS bids a set of technology servicessupported ads, display, and video advertising. Amazon also offers Amazon Prime, a membership program (OTT platform) that includes free shipping, access to streaming 3rd party content (various movies and television episodes), and Amazon’s content.

Almost 51% of Amazon’s revenue comes from online stores, 21% from 3rd party products & services, 12% from AWS, 7% from subscription services (Amazon Prime), 5% from physical stores, and the rest around 6% from miscellaneous products & services. In brief, Amazon is a great business classical and a household name. Any correction to 3475-3175 may be also a great opportunity for traders/investors; the target may be $4270-5500 by 2022-24. But Amazon’s ‘rogue’ business policies to gain market share at the expense of small competitors; i.e. monopolistic attitude is also an issue for some countries, like India.

Facebook: FB

FB, the social media giant made a COVID low around $137.10 in Mar’20 and eventually made a fresh lifetime high around $377.50 in July’21, a cumulative gain of around +175%; in 2021, it surged almost +38% so far (till 27th July). FB’s products include household names in social media platforms like Facebook & FB messenger, Instagram, and WhatsApp. Facebook ‘Reality Labs’, which helps to develop content with Oculus virtual reality technology. Almost 98% of FB’s revenue comes from ads (digital advertisements). The U.S. is FB’s biggest market (42%), follows by Europe (24%), APC (23%), Canada (2%), and the rest of the world (8%). Looking ahead FB may monetize its WhatsApp and Messenger platform (by bringing it under ad or subscription). Any correction towards 335-295 may be a good entry zone for FB with a target of $395-480. Growing regulatory scrutiny against ‘big tech’ in U.S./EU and many other countries is also a risk.

Twitter: TWTR

Twitter is another popular social media platform (micro-blogging and news), jumped almost +305% from Mar’20 COVID low $20.00 to Feb’21 lifetime high $80.75. At the current price of around $70, Twitter, Twitter is still up by almost +30%. The professional world is now relying more on Twitter rather than traditional TV news channels for real-time advanced newsfeed.

Twitter earns ad revenue through promoted tweets, accounts, trends, and also by the premium (subscription-based) special Twitter account. Almost 86% of Twitter’s revenue comes from ad services and the rest from data processing and other activities. The U.S. is Twitter’s biggest market (56%), followed by Japan (15%) and the rest 29% comes from across the globe. Any meaningful correction towards $65-50 may be a good buying zone; short to medium term target $90-100. Looking ahead, apart from increasing thrust on ad revenue, Twitter is also emphasizing subscription-based news services. But growing regulatory scrutiny in the U.S. and various other countries is also a risk.

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