Stock Picks

Money For the Rest of Us: Is It Time to Invest in Big Tech or Medium Tech Stocks?

Most tech stocks are down at least 20 percent from their 52-week highs. Many are in far worse shape. One such example is Netflix (NFLX), which has managed to shed over 70 percent in value from last year’s highs.

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  • That said, tech stocks have been big winners over time, particularly big tech names. That’s because they’ve had above-average growth, whether internally or through acquisitions. That’s also led to a high valuation, making them susceptible to a decline.

    Given this latest drop, is it time to “buy the dip?”

    Perhaps, but not necessarily. Having a diversified portfolio means owning both tech and non-tech stocks. Investors looking to scale in might want to look at medium sized tech stocks, not the largest.

    That’s because studies have shown that only 4 of the top 10 big tech names outperformed the market. That means 6 underperformed, and heavily.

    Plus, every decade, markets tend to shift sectors that lead the markets higher. Following tech’s big run, it may come from another sector, such as consumer goods or energy.

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  • Does that mean that big tech stocks have been in a now-bursting bubble? Given the excess valuation, yes. And the top-performing tech stocks could continue to fall.

    That said, given the extreme negativity in tech stocks right now could point to a buy.

    Ultimately, that suggests that investors can outperform the market in tech from here, but they need to look at the most profitable companies in today’s environment, not necessarily the largest.

    To listen to the full podcast, listen here.

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