Is it a good idea to invest in US stocks

Nowadays, Information Technology (IT) firms are gaining very aggressively in the market shares resulting in their concentration dominating the markets. Even though the companies are few in number, but they command the highest presence in the market with a share of more than 50%, Needless to say, even Apple and Microsoft are the main contributors even in these few companies! 

This is a new turn in the market. This, in the longer run, will stem a trend that will be directed away from globalization. Also, it will satisfy the pent-up demand for productivity-enhancing technologies in a result-oriented manner. Therefore, as a direct consequence, the solid financial position of this sector is most likely to improve substantially!

The Information Technology industry has proved to be a big scorer for stock market investors. Especially with the pioneers like Apple, Microsoft, Amazon, etc have made a significant mark in the stock market in the past year, for an investor his investment appears to be in safe hands. As promising as the investment in this sector sounds, there still are risks associated that investors need to take preventive measures against. The IT sector mainly comprises software, services, technology hardware and equipment (e.g., mobile phones, personal computers), semiconductors, and semiconductor equipment.

Apple and Microsoft might be the major contributor to the Information Technology sector, the impact of the pandemic has been fairly positive for a larger part of the sector with increased consumer demand for PCs, gaming hardware, software, personal devices, and online payment services (although at the expense of traditional credit card services by Visa and MasterCard). Although there is a huge possibility that there will be a fall in consumer demand post the pandemic.

Positives of the US IT sector

• The rollout of 5G.

• Onshoring trends that tend to support fundamentals.

• Generally strong balance sheets and earnings exhibit a great growth potential at comparatively lower funding costs;

• Cloud support with relevant computing infrastructure and software solutions for the e-commerce platforms.

• Expectations of long-term growth, as businesses enhance productivity with tech investment;

• A better prospect for Capital expenditures with more streamlined spending on technology infrastructure.

Negatives of the US IT sector

• Valuations are very different from what they should be as compared to the historical average, thereby making higher interest rates a seemingly impossible result.

• Shortage in the availability of Semiconductors, with low inventories to meet the high demands.

• Limited stocks to focus on

• Direct and indirect risks

• Antitrust suits in U.S. and Europe

Owing to the pandemic, we have seen a plunge in capital funding. However, investments in cloud and networking are on a considerable rise, with a possibility of further growth if the economic expansion continues.

With the current rollout of the 5G technology, it is being predicted that the wireless infrastructure will grow to an enormous scale to meet the increasing demand for telecommunication components and semiconductors.

However, there are small yet significant issues with the supply chains, that are always associated with it, which are unavoidable. These prove to be challenging and prove to be problematic while looking for semi-conductors.

Undoubtedly, there is a lot of speculation and optimism amongst investors who want to invest in the US IT Stocks. Their biggest dilemma is how to override the strong fundamentals while focusing on a higher return on their investments. If the growth meets the prediction, then in all likelihood, the higher interest rates will be higher than ever.

However, there are forever rising legislative and trustworthy risks always hovering over the largest companies in the sector.

To add to it, the strong relative price momentum has become very unstable in recent times.

Investment is always a risk – at times calculated, at times not! But then what is not?