Technology stocks have been slipping over the last week, with companies like Nvidia and Tesla seeing sharp drops and spikes in value on a day-to-day basis.
With the addition of the uncertain trade war and tariff outlook that can have ripple effects on stock markets, you may be on edge as you watch your investments bounce through all of the volatility.
Although the short-term performance for these companies may seem shaky, some experts say the long-term potential for many tech stocks is still strong so long as investors have a solid strategy.
“The bar is very high (in the tech sector) and some of those expectations are just hard to meet when you get that large,” says Josh Sheluk, portfolio manager and chief investment officer at Verecan Capital Management.
“Despite the fact that there might be some risks associated with these companies, the stocks and the market in general have been doing quite well.“
What is happening in the tech sector right now?
Rapid developments in artificial intelligence (AI) have led to a massive surge in investor purchases of technology stocks over the past few years because of the long-term expectations and seemingly infinite potential.
Nvidia, which makes semiconductor chips and data centers that support AI systems, has seen its market capitalization grow to more than US$6 trillion in just a few years to become the world’s most valuable company — more than Microsoft and Apple.
“AI is driving the stock market, it’s driving the economy in a lot of ways right now, and it’s the tech sectors specifically, and Nvidia is kind of at the forefront of the AI push,” says Sheluk.
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“It’s almost like Nvidia is now synonymous with AI, and they have seen actually quite good results in terms of both the growth of their business and the appreciation of their stock price over the course of this year.”
Although Nvidia’s stock price has surged roughly 35 per cent so far this year, it has ridden a roller coaster of volatility to get there with dramatic changes in value day to day.
This short-term performance can make some investors uneasy — especially if their retirements rely on these investments.
In the case of Nvidia and other high profile companies that grow so quickly, ups and downs — or even stalling — stock prices can happen as some investors may be inclined to quickly sell their stock on the first perceived sign of a slowdown in that rapid growth.
That’s what happened this week.
Publicly-traded companies that offer their stocks for purchase are legally required to disclose their earnings every quarter, or three-month period. On Aug. 27, Nvidia reported its second quarter results, and although the company did show some strong numbers including for sales of its chips and data centers, some investors were hoping for another blowout quarter.
The Nasdaq, which is a tech-heavy stock index, slipped on Thursday and Nvidia’s shares were down 2.6 per cent in volatile trading. The broader S&P 500 technology sector reversed early gains and dropped 0.5 per cent while the chip index slipped 0.2 per cent.
“The results were good and probably better than expected in a lot of respects, but the stock price was kind of neutral. It didn’t react too positively,” says Sheluk.
“Certainly when you set the bar very very high it becomes harder and harder to meet or exceed that bar and I think that’s what Nvidia is experiencing right now.”
Sheluk goes on to say: “Nvidia’s stock experienced explosive growth for the last several years, and when that happens, people tend to project that out into the future and the larger and larger you get the harder and harder it is to grow at such an exponential rate — so expectations are high.”
In the case of Tesla, growing demand for electric vehicles in the past few years caused its stock price to soar. But, as competition increases from companies like BYD in China, some investors have shown concerns Tesla may lose market share and sold the stock.
Following these short-term updates may be nerve-racking for some investors, as Tesla’s stock is down almost nine per cent so far this year, but in the past five years, it is still up almost 135 per cent.
Although there is short-term volatility in the tech sector, Sheluk says investment experts tend to focus on long-term results, so there still could be an opportunity for many looking to build a retirement portfolio that includes at least some stocks like Nvidia and others like it.
Do technology and AI investments make sense for you?
Most financial experts will advise clients to diversify their portfolios to help manage their risk. This means it’s important to not put all your eggs in one basket by focusing too much on one particular investment or sector, but instead to spread out your money to add variety.
This could include having at least some money invested in the tech sector for certain individuals.
“I don’t think as an investor, you should be running away from tech stocks. I don’t want to give that impression whatsoever. I think pretty much every investor that’s out there, if you’re having a diversified portfolio, you should probably have a material part of your portfolio invested in the technology sector,” says Sheluk.
“But, if you’re going to be very focused on the AI segment especially, you have to be very comfortable with the volatility,” Sheluk added.
“This uncertainty can make us uncomfortable, the value of investing is being able to sit through some of those periods of time and remain resilient, patient, and if you’re a little bit more hands-off, generally portfolios are going to grow successfully over time.”
–with a file from Reuters.
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