While the first batches of the vaccine rolled out this week, investors are optimistic about returning to normal next year. That means a growing economy and gains in cyclical stocks that underperformed during the pandemic…
But what happens to tech stocks next year? Will they underperform after a strong year of gains? The Invesco QQQ ETF (QQQ), an index made up of the 100 largest non-financial companies listed on the Nasdaq Composite index, is up 46% year to date. That’s quite a gain, especially compared to the S&P 500’s gain of only 14.7%.
It was clear from April that the major beneficiaries of the pandemic were going to be tech stocks that had the infrastructure in place to facilitate online learning, business, and commerce. Then came news of positive results in vaccine trials in November, and a rotation into more cyclical stocks began. While I believe that the rotation will continue into next year, I’m not counting out tech stocks. I believe people are overestimating the amount of time it will take for things to get back to the “old normal,” even after a large percentage of the population is vaccinated.
In addition, sky-high valuations of many tech stocks are likely to continue, especially with a near-zero interest rate. In fact, following its latest policy meeting, the Fed announced today it would keep the short-term interest rate near zero. Plus, any comparison to the dot-com bubble is off-base, as many of those stocks had zero revenue, which can’t be said for many of the big-name technology stocks today. While valuations for some recent IPOs with no profits are concerning, established technology companies still have room to gain. This is true for ServiceNow, Inc. (NOW – Get Rating), Autodesk, Inc. (ADSK – Get Rating), NXP Semiconductors N.V. (NXPI – Get Rating), and Skyworks Solutions, Inc. (SWKS – Get Rating).
NOW provides software solutions to structure and automate various business processes via a SaaS delivery model. The cloud-based IT services company primarily focuses on the IT function for enterprise customers. NOW made headlines last week after it acquired artificial intelligence (AI) start-up Element AI. This should boost NOW’s AI capabilities. Element AI was founded to help non-tech companies build AI services.
NOW has seen strong growth in subscription revenues as businesses and government agencies continue to bring their infrastructure to the cloud. The company is targeting public and large private companies, and as it gains more Fortune 500 clientele, revenue should continue to increase. In addition, its expansion into non-IT service management markets such as human resources and security solutions bodes well.
The company had a strong third quarter with adjusted earnings increasing 22.2% year over and revenue jumping 28%. NOW also raised its raised 2020 guidance for…
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