Investing in tech stocks has become increasingly popular in recent years. And for good reason. The technology sector has outperformed the overall stock market by a wide margin over the past decade.
Here are 10 reasons why you should consider investing in tech stocks:
1. Strong historical performance
In the past 10 years, the technology sector has delivered an annualized return of nearly 13%, compared to just over 7% for the S&P 500.
And over the last 20 years, tech stocks have returned an annualized 16%, more than double the return of the broader market.
2. Innovative and exciting companies
The technology sector is home to some of the most innovative and exciting companies in the world. Companies like Amazon, Facebook, and Google are constantly pushing the envelope and introducing new products and services that change the way we live and work.
3. Rapidly growing industry
The technology sector is one of the fastest-growing industries in the world. Global spending on information technology is expected to reach tens of trillions of dollars in years to come.
4. Lucrative opportunities for growth
Many tech companies are still in their early stages of growth and offer investors lucrative opportunities for long-term capital appreciation. For example, shares of Amazon have skyrocketed more than 2,000% since the company went public in 1997.
5. Strong fundamentals for growth
Tech stocks tend to have strong financial fundamentals, with many companies posting double-digit sales and earnings growth. For example, Facebook reported revenue and earnings growth of 47% and 63%, respectively, in its most recent quarter.
6. Favorable demographics
The technology sector benefits from favorable demographic trends, as younger generations are increasingly comfortable with and reliant on technology. For example, millennials are expected to make up 75% of the workforce by 2025.
7. Resilient during economic downturns
While the overall stock market tends to be volatile during economic downturns, tech stocks have historically been more resilient. For example, during the 2008 financial crisis, the tech-heavy Nasdaq Composite Index actually rose while the S&P 500 fell by nearly 40%.
8. Attractive valuations
Despite their strong historical performance, many tech stocks still trade at relatively attractive valuations. For example, the forward price-to-earnings ratio for the tech sector is currently around 18, which is below the historic average of 20 for the S&P 500.
9. Dividend growth potential
Many tech companies are now paying dividends, and some have significant dividend growth potential. For example, Apple’s dividend has grown by more than 25% per year over the past five years.
10. Long-term tailwinds
The technology sector is benefiting from a number of long-term tailwinds, including the continued growth of the global economy, the proliferation of mobile devices, and the rise of artificial intelligence. These trends are expected to continue for many years to come, providing a strong tailwind for tech stocks.