With the markets in turmoil, shedding loads of value seemingly by the day across the board, it’s no longer a sure thing to bet on the tech sector or even its most prominent companies.
It used to be that investors could put some money in the famous FAANGs — Facebook, Apple, Amazon, Netflix, and Google parent company Alphabet — and be assured of doing well. But Apple and Google’s stocks are down for the year, and Facebook’s has fallen off a cliff. While both Amazon and Netflix’s shares are still up for the year, they’re way off their highs.
What’s more, Wall Street analysts are forecasting that the technology sector’s profit growth rate will slow dramatically next year after being boosted by President Donald Trump’s tax cut this year, said Dan Morgan, a long-time tech investor with Synovus.
Going into 2019, “you just have to be very discerning in the tech sector,” said Morgan, a portfolio manager at Synovus Trust. He continued: “You have to do your homework and zero in on some of [the] trends.”
So what’s an investor to do? What are the big trends to watch?
Many tech sectors are looking uncertain right now, said Morgan. Although he’s not predicting a recession next year, he does think economic growth will slow, and that will hit some areas harder than others.
The consumer sector in particular looks shaky right now, because many of the big companies face other obstacles in addition to a potential economic slowdown, he said.
Apple’s stock, for example, is highly dependent on its ability to sell iPhones, and those sales have started to decline, he noted. Google and Facebook’s business models, built around collecting highly personal information from consumers, have come under increasing scrutiny of late amid a series of privacy and other scandals.
Netflix and Amazon’s stocks and businesses have held up, but both look to be the exceptions in the consumer technology sector that prove the rule, he said.
So Morgan’s advice is to look to the cloud.
Spending on cloud services is growing at a rapid rate as businesses of all sizes increasingly shift their technology spending to them and away from their own data centers, Morgan said. The industry will soon see a $10 billion windfall from the US Defense Department, which is planning to move some of its own computing infrastructure to the cloud as part of its Joint Enterprise Defense Infrastructure (JEDI) program, he noted.
“That’s an area that’s still very strong,” he said.
In fact, he thinks the prospects for the area are so good, his theme or 2019 is “roll into the cloud.”
With that in mind, here are Morgan’s top picks in tech going into 2019: