XLK ETF: What’s in Store for the Technology Sector 2022
The technology sector has grown
at an accelerated pace over the past few decades to become the
backbone of the modern economy. We’ve come a long way since the dot
com bubble in the early 2000s, with the invention of smartphones,
high-performance laptops, cloud computing services, and social
Investors have historically
remained bullish on the technology sector over the past decade.
This is evidenced by the Technology Select Sector SPDR
XLK) ETF’s 583.18% returns over the past ten years,
while the benchmark S&P 500 Index (AMEX:
SPY) has gained 266.3% over this period.
Comparatively, the tech-savvy Nasdaq 100 index surged 404.7% over
the past decade.
DataTrek co-founder Nicholas
Colas expects the stock market to be driven primarily by
technological innovation over the next 20 years. The rising
productivity due to technological innovation should allow companies
operating in various sectors to witness a robust rise in their
profit margins, which, in turn, is expected to boost the share
prices of publicly-traded companies further.
Here are some trends that will
shape the tech sector’s performance this year:
Wide-Scale adoption of hybrid work models
Remote working gained traction
during the initial days of the pandemic, as countries around the
globe announced strict lockdowns and social distancing rules.
However, the impact of the total lockdown was mitigated by the
adoption of work-from-home structures facilitated by platforms such
as Zoom (NASDAQ:
ZM), and Microsoft’s (NASDAQ:
While tech giants were exploring
a return to office policy in the second half of 2021, the rapid
spread of delta and omicron coronavirus variants put these plans on
hold. The companies will likely ask employees to return to the
office at least partly this year as the pandemic phases out. Tech
giants typically set the guidelines for such mass-scale hybrid work
models, which will then trickle down to non-tech companies
Increased Focus on Cybersecurity
It’s not surprising that
cybercrime has been rising in the post covid era, as more and more
people have been opting for online financial transactions.
According to a CNBC report, data breaches increased 273%
year-over-year in the first quarter of 2020. In the second half of
2020, the U.S. government traced a massive data breach, which
affected major government departments and private sector
Regarding this, Interpol
Secretary General Jürgen Stock said, “Cybercriminals are developing
and boosting their attacks at an alarming pace, exploiting the fear
and uncertainty caused by the unstable social and economic
situation created by COVID-19.”
Thus, we will see an increased
demand for cybersecurity products and services in the new year.
Artificial Intelligence (AI) powered cybersecurity, which
identifies out-of-the-ordinary activities, will be adopted
2022 is predicted to be the
biggest year for metaverse, with tech companies investing heavily
to develop augmented reality. To this end, Facebook, one of the
biggest names in the tech and social media space, changed its name
to ‘Meta’ (NASDAQ:
FB) and is focusing on
developing 3D virtual spaces and the next chapter of social media
Big tech companies are betting on
metaverse to be the biggest development in the tech space since the
invention of touchscreen smartphones back in 2007. The FAAMG group
is gearing up to launch hardware products that support the
development of the metaverse this year.
The tech sector has high-risk
attributes and is often subject to immense pullbacks during times
of economic uncertainty and volatility. Over the past year, the
tech sector witnessed several pullbacks due to macroeconomic
parameters and shifting investor sentiment. However, the segment
has historically outperformed the broader markets by a huge margin.
With the digitization of virtually every industry, technology is
poised to maintain this momentum over the long run.
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