Why is every listed smartphone company falling

Tech stocks 2021: future potential for your portfolio

Up here: the big tech stocks have pampered investors with rich returns over the past few years.

The stock exchange years from 2010 to 2020 were characterized by the rapid rise of the large technology companies. They gave Wall Street its first trillion dollar companys. But shares in technology companies were also in demand on other stock exchanges around the world. Even the corona pandemic couldn't change the boom in tech stocks. On the contrary: Tech stocks were among the beneficiaries of the pandemic, because it accelerated the trend towards digitization in the economy. This trend will continue even after the pandemic has ended. That is why many tech stocks have risen sharply again after the massive price drops in February and March 2020. More than a year later, they are trading close to or at highs above the pre-Corona level. But in 2021 the trend is no longer so clearly upwards, and there are often severe setbacks. Nevertheless, tech stocks will continue to be very popular with investors in 2021. The question is where the entry is still worthwhile after the sometimes substantial price gains.

High valuations for tech stocks

Caution should be exercised with the high valuations of tech stocks. As the vaccine campaigns began to take effect in different countries and the prospect of economic normalization emerging, the relative strength of tech stocks versus the market as a whole has diminished. Many professional investors have already reacted to this and reallocated their investment portfolios, that is, they have sold tech stocks. If you want to get into the already highly rated technology sector, you should be aware that there may be further corrections. Long-term investors don't need to be nervous if they are convinced of the future potential of tech stocks.

What are tech stocks?

There is no precise definition of tech stocks. However, this certainly includes the share certificates from Facebook, Amazon, Apple, Netflix and Google. (Google is listed on the stock exchange under the name of its parent company Alphabet.) These five large US companies have not only changed our everyday lives in the past ten years - how we communicate, consume news, find information or watch films. They were also the most important growth drivers on the stock market. They are often grouped under the abbreviation FAANG shares. Some also include Microsoft, then it's called FAANG + M.
In general, the technology sector is made up of companies that develop future technologies or use advanced, mostly digital technologies in their business model. This ranges from medical technology companies to developers of electronic devices and digital platforms. So not all tech stocks are the same. Investors who want to invest in technology stocks have to look carefully.

Trading apps: comparison of eight stock apps for beginners and advanced users

Which trading venues are available?
What are the trading hours?
Number of tradable stocks, ETFs, funds, savings plans?
What is the minimum order volume?
Stocks, ETFs and derivatives are traded without order commissions; only one euro flat rate for third-party costs, free custody account management
LS Exchange; for ETFs: iShares
7:30 am to 11:00 pm; for over-the-counter derivatives from 8:00 a.m. to 10:00 p.m.
7,500 stocks and ETFs, 1,300 stock and ETF savings plans, 40,000 warrants, knock-out products and factor certificates
no web application available, just a trading platform
App with learning curve effect, as it provides insight into other users' investor strategies
around 2,000 shares free of commission; Spread fees 0.09%; Conversion fees, as it is traded in US dollars; no custody fees, only those who do not log in for 12 months pay 10 US dollars per month; Withdrawal fee $ 5
There are 17 trading venues for stocks, such as the US stock exchanges Nasdaq (511 stocks) and NYSE (825), Frankfurt (119), London (367)
depends on the respective stock exchanges
2,000 stocks, 16 crypto values, many ETFs, other stocks and many other products as derivatives
Learning from others is possible, exercise function
somewhat confusing price structure, only a few stocks
tidy use, despite a large selection of products
commission-free; no flat rate for third-party costs; free custody account management, but negative credit interest of 0.5 percent
Tradegate, LS Exchange, Quotrix
7:30 am to 11:00 pm; OTC direct trading from 8:00 a.m. to 10:00 p.m.
7,300 stocks, 1,100 ETFs, over 500,000 derivatives; in addition, crypto values ​​can be traded
500 euro; 50 euros for crypto assets
comparatively high minimum order volume, only three trading venues
in the 1st year EUR 3.90 per order on all German stock exchanges, then EUR 4.90 plus 0.25% on the order volume (min. 9.90, max. 59.90 euros); plus trading venue fee (min. 1.50 or 2.50 euros) and third-party fees; Free deposit for 3 years, then linked to activities, otherwise 1.95 euros / month
all German trading venues; also twelve more in countries such as the USA, Japan and Great Britain
depends on the respective stock exchanges
14,500 stocks, 1,500 ETFs, 32,500 funds, 629,000 warrants, 1,085,000 certificates and 62,500 bonds
extensive yet clear app
high order fees from the 2nd year
simple and clear
No order fees in the first 6 months at Tradegate, L&S, Baader Bank, then 5.90 euros per order, and since March 2020 also a custody fee of 0.1 percent on the market value
all German stock exchanges, around a dozen foreign trading venues, 20 direct trading partners
depends on the respective stock exchanges
8,500 stocks and ETSs, more than 1,000 ETF savings plans, 5,000 funds (including ETFs); also derivatives and CFDs
numerous learning videos and webinars on current topics
not a pure trading app, a bit confusing
Stock orders 3.95 euros in the 1st year when trading via Tradegate; otherwise at least 9.95 euros per trade, max. 69 euros; many funds and ETFs without fees, free custody account management
all German trading venues, more than 20 foreign stock exchanges, over 20 direct trading partners
depends on the respective stock exchanges
20,000 stocks and 7,000 funds (including ETFs); in addition, numerous bonds, currencies and commodities
numerous trading venues with many stocks
App not focused on securities trading, high order fees from the 2nd year
extensive app, but also for beginners
Gettex: EUR 0.99 per order or flat rate from EUR 2.99 per month with an unlimited number of orders and ETF savings plan executions; Xetra: 3.99 plus at least 1.50 euros; free depot management
8 a.m. to 10 p.m. (Gettex), 9 a.m. to 5 p.m. (Xetra)
4,000 stocks, 1,300 ETFs and ETF savings plans, 2,000 managed funds
Gettex only: 250 euros; Savings plans from 25 euros per month
low costs, attractive flat rate price model for active traders (only Gettex)
Minimum order volume at Gettex, only two trading venues, no derivatives
dispenses with any design finesse, the focus is purely on the information
3.99 euros per order in the first 6 months (plus trading venue fee, processing fee), thereafter: 4.99 euros plus 0.25 percent of the order value (min. 8.99, max. 54.99 euros); Free custody account management for at least one transaction per quarter, otherwise EUR 11.97 per quarter
all German trading venues, 29 foreign stock exchanges
depends on the respective stock exchanges
9,000 stocks, 12,000 funds, 2,000 ETFs, 20,000 bonds, 1.3 million leverage products, plus stock savings plans, ETFs eligible for savings plans, funds and certificates
Trading on numerous stock exchanges
high order fees from the 7th month, extra app for CFDs

Nasdaq-100: The Technology Barometer

This also applies to investments in stocks of companies that are listed on the Nasdaq in the USA or corresponding index funds. Because although the Nasdaq is considered a technology exchange, technology stocks are predominantly, but not exclusively, represented there. The misunderstanding probably stems from the fact that the exchange, founded in 1971, was the first fully electronic trading platform in the world. So it is a computer exchange, but strictly speaking not a technology exchange. However, because the Nasdaq was itself a technology leader and cheaper than the New York Stock Exchange (NYSE), it attracted a large number of (young) technology companies.
»SpaceX / Starlink Stock: When Will Elon Musk's Rocket Company Go Public?

Today the shares of Apple, Microsoft, Amazon, Facebook, Google (Alphabet), i.e. FAANG + M as well as Tesla Motors and Intel have a large weighting in the Nasdaq 100 index. It is made up of the 100 largest non-financial stocks listed on the Nasdaq stock exchange. Companies such as Starbucks and Ulta Beauty are also represented there. Overall, however, the majority of the companies listed on the Nasdaq-100 are in the technology sector. Therefore, the Nasdaq 100 index is considered to be the world's most important technology barometer.

Digital platforms are assigned to different sectors on the Nasdaq. For example, Amazon can be found in the consumer goods sector, even though the company generates most of its profit from web services rather than e-commerce. Netflix runs as a media company.
»Gaming stocks: this is how investors generate returns in a playful way

Tech stocks are very unevenly distributed geographically. In the indices with shares from the euro zone, their share is less than ten percent. In the United States, they are much heavier. About 25 percent of the stocks in the S&P 500 belong to the technology sector. The S&P 500 stock index comprises the stocks of the 500 largest listed US companies.

Why are tech stocks attractive?

Technology stocks like FAANG are usually growth stocks, which means that companies aim to continuously increase their sales and to constantly penetrate new markets. Many therefore do not pay dividends because they invest their earnings in innovations or expansion. However, investors benefit from the associated price increases.
The technology sector has been on the rise for ten years. During this time, the Nasdaq-100 achieved an average return of around 16 percent per year. The technology barometer not only did 4.5 percentage points better than the broad S&P 500, the Nasdaq 100 also beat the global market as a whole in nine out of ten years.
Then the corona pandemic hit the stock exchange and also caused tech stocks to crash. But it quickly became apparent that many tech companies are even benefiting from the crisis - such as the online retailer Amazon and developers of software for the home office. Prominent examples are the providers of video communication such as Zoom or Microsoft (Teams) or the software company Adobe. And the streaming service Netflix has benefited from the closed cinemas because it brings entertainment to people's living rooms.
»New shares 2020: The most exciting IPOs of the year

So it is hardly surprising that the Nasdaq-100 closed at 12,888.28 points in 2020, which corresponds to an increase of more than 4,000 points compared to the closing value of the previous year. The technology-heavy Nasdaq Composite Index also withstood the corona virus attack and grew by around 43.2 percent in 2020. Other major stock market indices such as the Dow Jones Industrial Average and the S&P 500 Index gained 6.3 percent and 15.4 percent, respectively, over the same period. Among the sectors, the technology sector performed best in 2020. In fact, the S&P 500 Information Technology climbed 41.5 percent compared to 2020 S&P 500 Index earnings.
And there is some evidence that the rally in tech stocks is not over in 2021 either. On the one hand, because the FAANGs and other technology companies are leaders in the development of future technologies such as artificial intelligence. On the other hand, because the trend towards digitization and the changes in consumer behavior of people due to Corona are playing into their cards. These megatrends promise a lot of upside potential.

What are the risks?

Investing in tech stocks, however, carries high risks. On the one hand, this is due to the fact that the development of new technologies is associated with great uncertainties. There is simply the risk that certain innovations will not succeed in the market as hoped.
On the other hand, technology companies are in global competition and are always forced to stay at the forefront of development. That devours a lot of money for research and anyone who misjudges a development will quickly be among the losers.
One example of such a crash is Nokia: The Finnish company was not only a technological leader for a long time, but was also the undisputed world market leader for mobile phones - until Apple's iPhone came along. In the third quarter of 2007, Nokia's global market share was 48.7 percent. By the second quarter of 2013, the market share had dropped to just 3.1 percent. Today it is zero, because Nokia no longer produces any mobile phones. The share price, which was a good 27 euros at the end of 2007, is now (as of the beginning of May 2021) around four euros.
Another risk lies in the high volatility of many tech stocks. That means: your prices fluctuate very strongly. In addition, many US technology stocks are currently valued very highly, which reduces the chance of further high growth in the future. And a good development in the past does not automatically mean that it will continue like this in the future.
Shares always carry the risk of total loss, and technology stocks are no exception - the shareholders of the financial technology company Wirecard, for example, had to experience this painfully last year.
»Instead of Wirecard: The best payment shares for the deposit

The fact that the market is largely driven by just five large corporations naturally also harbors risks. Overall, Apple (market capitalization 1.8 trillion euros), Microsoft (1.6 trillion euros), Amazon (1.5 trillion), Google (Alphabet, 1.3 trillion euros) and Facebook (769.7 billion euros) combine one market capitalization of a total of almost seven trillion euros (all values ​​as of the beginning of May 2021). For comparison: all companies in the DAX come together at the beginning of May 2021 with a market capitalization of just under 1.5 trillion euros - this roughly corresponds to the value of Amazon and is far less than Apple alone is worth. The rate of return in the technology sector therefore depends heavily on the development of only a few companies.

Interesting tech stocks in 2021

The range of technology stocks is very broad. COMPUTER BILD has selected five stocks that you as an investor can shortlist. Before you decide to buy, however, you should also observe the rules that apply to every share purchase: As an investor, you should know exactly what you are investing in. The selection - stock picking - should therefore be preceded by an intensive analysis of the values. There are also different approaches here.One possible is the fundamental analysis, in which quantitative factors such as business structure, earnings position and cost situation as well as qualitative factors such as know-how, innovative ability, quality of management and future potential are included.
»China stocks: Big returns from the Middle Kingdom

An often used yardstick for the valuation of a share is the price-earnings-ratio (P / E, or English: Price-Earnings-Ratio, PER), which sets the current share price in relation to the (expected) earnings per share. The rule of thumb is: A stock with a P / E ratio of less than twelve is generally considered inexpensive. Conversely, if the P / E ratio is over 20, the stock is considered expensive. However, investors must pay attention to the special features that are common in the industry: The P / E ratios of promising technology stocks are usually very high. Here there is a prospect that the companies will grow into this valuation with their sustained growth dynamics. However, experts are already warning that, given the current overall high valuation level, a tendency towards falling prices is to be expected. Nevertheless, you should take a closer look at these six stocks:

SAP - THE German technology group

The software manufacturer SAP is by far the most valuable company in the DAX. SAP supports companies in driving digitization forward. However, due to the Corona crisis, the software company had to lower its forecast for 2020 twice and could no longer meet its medium-term goals. In October, the price plummeted 22 percent. Since then it's slowly going back to oban. In the past six months, the SAP share has risen by around 25 percent and is currently (at the beginning of May) at 115 euros, but is still a long way from its high of 143.24 euros last September. Investors with a long-term perspective could take advantage of the currently still relatively cheap level to join SAP. The SAP rival Salesforce is an interesting alternative.

Square - the payment provider

A tech stock with potential is Square from California. Square revolutionized payment transactions in 2009 with the Square Reader, which allows merchants or restaurants to accept card payments with a smartphone or tablet. In the corona pandemic, when contactless payment was suddenly more popular than ever before, Square gained many new customers. But private individuals also use Square. The Cash app is a kind of virtual wallet that users can use to pay, send money and even invest. After a significant correction in February and March of this year, Square shares have now set their sights back on their all-time high of € 233 from February 2021.

Netflix - the climber

The streaming service Netflix has seen rapid development on the stock exchange since 2013. The Californian company's stock rose around 67 percent in the past year alone. The share was boosted in January 2021 by the announcement by management that it was considering buying back shares to maintain the price for the first time since 2011. Netflix is ​​one of the biggest beneficiaries of the Corona crisis because people in lockdown stream a particularly large number of films and series at home due to the lack of alternatives. However, the influx of customers has clearly eased again. In the first quarter of 2020, 15.8 million paid subscriptions were added; in the three months to the end of December, the number of paying subscribers only rose by 8.5 million to just under 204 million. The stock exchange reacted disappointed to the number of just under four million new subscribers in the first quarter of 2021. Nevertheless, many analysts still recommend the share as a buy, as the medium to long-term outlook is still sound. As an alternative, Amazon is interesting, which also has a streaming service with Primevideo.

Nvidia - graphics chips for games and AI

Nvidia develops computer graphics processors, chipsets and the associated multimedia software. During the lockdown, Nvidia benefited from the increased demand for hardware for game PCs. Nvidia is also playing in the promising artificial intelligence (AI) market, as graphics chips are particularly well suited for analyzing large amounts of data. In 2020 Nvidia announced a new technology platform to help programmers of AI (Artificial Intelligence, for short: AI) to use video and voice data to create "Conversational AI". This software can, for example, hold discussions with customers or patients in call centers or telemedicine. In addition, Nvidia's graphics cards are used to mine crypto currencies such as Bitcoin or Ethereum. This is another reason why many analysts continue to consider this tech share to be a buy. The chip manufacturer AMD is an alternative.

Apple - smartphones for 5G

The most valuable technology company in the world has already made many shareholders rich in the past two decades. The development was also quite impressive recently: more than 80 percent price increase in one year and highs in 2020. At the beginning of 2021, the Apple price continued on its successful path and reached a record high of 119.60. The legendary US investor Warren Buffett also relies on the iPhone developer. Apple is the largest holding in Buffett's Berkshire Hathaway conglomerate and the Oracle of Omaha’s favorite stock. But how much potential is there still in the share and is it still worth getting started? The new 5G cellular technology could further boost Apple's business. The first 5G-capable iPhones, which Apple presented in autumn 2020, should not only boost demand for new devices, but also for new services. In the quarter from January to March 2021, Apple already increased sales by 54 percent to 89.6 billion US dollars (75 billion euros). At 23.6 billion US dollars (19.6 billion euros), profit was a good double that of the previous year.

Zoom Video Communications - video conferencing for the home office

Unlike Apple, Zoom Video Communications is a dwarf and a newcomer to the market. Zoom Video has only been listed on the stock exchange since 2019. The video conference provider benefits from the fact that many employees set up in the home office during the Corona crisis. The price of the Nasdaq-listed Zoom share rose 416 percent from the end of January 2020 to the end of January 2021. Users appreciate the service, but concerns about data protection and security deficiencies had meanwhile significantly reduced the hype. But how will the demand for video conferencing systems develop in the future? Many workers long to go back to their offices and meet their colleagues in person. But business trips are still not popular, which could keep demand at a high level in the long term. But in addition to Zoom, financially strong competitors such as Microsoft, Facebook and Alphabet (parent company of Google) have alternative offers on the market. With Zoom, very courageous investors bet on the challenger. The timing could be good. At the beginning of May, the Zoom share was trading at around EUR 260, still well below its record of EUR 499.

Tech ETFs: Technology stocks in a package

Don't you dare to pick the right tech stocks? Especially beginners and security-conscious investors who shy away from buying individual tech stocks should rather invest in an equity fund focused on the technology sector than in individual stocks. Basically, it is always advisable to diversify your investment capital broadly and not to put everything on one card - in this case on the tech sector or even just one tech share. The easiest way to do this is to buy an equity fund for those who do not have large sums of money to diversify.

Passive exchange-traded index funds, or ETFs (Exchange-Traded Funds) for short, are particularly inexpensive. A broad diversification also means, however, that not all of the investment capital should flow into just one ETF or just into technology funds. A portfolio is broadly diversified if it is diversified across industries and countries. Here are three ETFs that investors can use to invest in tech stocks:
  • The iShares S&P 500 Information Technology Sector UCITS ETF USD is accumulating, so dividends are reinvested and not distributed. The ETF physically tracks a technology stock index based on the S&P 500. That means: He buys the corresponding securities. The expense ratio (TER) is 0.15 percent. The heavyweights in the index are Microsoft, Apple, Visa, Intel and Mastercard.
  • The Lyxor MSCI World Information Technology TR UCITS ETF tracks the reference index MSCI Daily TR World Net Information Technology. This measures the performance of more than 150 IT companies from 23 industrialized countries. US stocks such as Apple and Microsoft continue to have the greatest weight, but the DAX stock SAP is also represented in the index, for example. The index is replicated synthetically using swaps. The fund company does not invest in all stocks, but also tracks the index using financial instruments. The expense ratio is 0.30 percent.
  • The L&G Artificial Intelligence UCITS ETF is still young compared to the other two funds, it was only launched in July 2019. He also invests in a much more focused manner: The underlying ROBO Global Artificial Intelligence Index provides access to companies that generate a significant part of their sales in the field of artificial intelligence. The fund is accumulating, physically replicates the index and has an expense ratio of 0.49 percent.
* Our independent experts regularly deal with products and service providers. We will provide you with the resulting articles free of charge. COMPUTER BILD receives a small commission if you click on a link or conclude a contract with a linked provider. Note: The content on computerbild.de is not a specific investment recommendation and only contains general information. Authors, editors and the cited sources are not liable for any losses that may arise through the purchase or sale of the securities or financial products mentioned in the articles. Complex financial products such as CFDs in particular harbor a high level of risk: According to the company, 67% of retail investor accounts with eToro lose money when they trade CFDs from this provider.

Related Links

Do you like this article?