Technology: New Applications, New Growth
While the technology sector hit a rough patch last year, with a number of tech CEOs coming out against then-candidate Trump and his immigration reform and trade proposals, it’s been roaring so far in 2017.
As now-President Trump has dialed back his rhetoric on the issues tech insiders found most concerning, many now predict they’ll be able to find ways to work with the administration. They’ve definitely got some motivation now. The technology sector gained nearly 12% in the first quarter, as the tech-heavy Nasdaq blew the broader indices out of the water.
While second-quarter earnings season hasn’t kicked off yet, analysts estimate the sector’s earnings grew about 11% on 7% higher revenue. Despite muted expectations for the industry’s biggest names, such as Apple (NSDQ: AAPL), Alphabet (NSDQ: GOOGL) and Facebook (NSDQ: FB), some analysts say that it will likely be one the of the top three growth sectors.
Growing global demand for technology, whether for hardware or software, and generally positive business sentiment and investment are the drivers of that growth. In fact, technology stocks are setting the tone for markets as far away as China, with Alibaba Group (NYSE: BABA) and Tencent Holdings OTC: TCEHY) among the top performers there.
The tech sector should continue outperforming. Notably, Tesla’s (NSDQ: TSLA) market capitalization has surpassed that of Ford Motor (NYSE: F), as electric and autonomous vehicles gain popularity. Another sign of upward momentum is Intel’s (NSDQ: INTC) recent acquisition of Mobileye, a solid indication that Silicon Valley believes self-driving cars are the future.
The Internet of Things (IoT) is on track to remain a profitable trend, as more and more devices are connected to the Internet to share data. Demand for smart health care devices is expected to be a key driver of IoT growth in the U.S. and Europe, while continued adaption of advanced factory automation systems should lead the trend in Europe. Asia-Pacific is poised to turn in the fastest growth in that area, which is little surprise since many of the leading makers of IoT-enabled devices are based in the region.
Artificial Intelligence (AI) should also prove a profitable niche of the tech sector. Research firm International Data expects spending on AI systems to hit $12.5 billion in 2017, more than double the expenditures in 2016. Self-driving cars are expected to be a major impetus for that spending growth.
Technology giant IBM (NYSE: IBM) continues to make strides in AI, recently announcing that it will begin selling its Watson machine learning analytics system to its mainframe customers. Watson allows for faster, more efficient searches of massive quantities of data.
Presidential spats and occasional Twitter storms aside, don’t count technology out. In fact, given the growing demand for new and emerging solutions, the technology sector could ultimately prove a safe haven.