What’s Driving the Market, a Look at US Equities

The Tech Landscape

The rationale behind the resurgence of the tech sector is varied, but two ongoing developments – mass layoffs and the shift toward Artificial Intelligence are contributing factors. 

As stated in many press releases and published articles, many tech firms have – and still are – ‘right sizing’ their staff to levels they deem appropriate, given the current market conditions. As noted in May 2023 Challenger report, layoffs in tech have reached a level not seen since 2001. While layoffs are bad due to the individual implications associated with them, the market does view these activities as ‘cost cutting’ measures that will ultimately benefit these organizations in the long run.

In the last three months, no two words have been stated together in greater frequency than ‘Artificial Intelligence,’ as almost every firm has mentioned their use of it or stated their intention to utilize it within their business operations. The firm that has seen a material benefit from the AI wave is NVIDIA Corporation. Originally known for making the type of computer chips that process graphics, particularly for computer games, Nvidia hardware underpins most AI applications today.

The last quarterly earnings report from Nvidia noted over $2 billion in profit in three months. This latest push comes after Nvidia’s business boomed early in the pandemic during a Graphics Processing Unit (GPU) shortage, while they were in demand for PC gaming and cryptocurrency mining before those markets fell back throughout 2022. In the present, the popularization of ChatGPT, which was trained using 10,000 of NVIDIA's GPUs clustered together in a supercomputer belonging to Microsoft, has made the firm (i.e., NVIDIA) a central player in the AI revolution.

The company has now become a household name, achieving a one trillion market capitalization – albeit temporarily.

So what does all this mean? Against the backdrop of a macroeconomic environment still filled with uncertainty, the technology sector – particularly ‘big tech’ companies are thriving and may even be considered a safe haven for investors at this juncture. In looking at the year-to-date performance of the NYSE FANG+ TR Index, which provides exposure to ten of the highly traded tech giants, it has outperformed the S&P 500 Index significantly. Furthermore, when looking at the ProShares S&P 500® ex-Technology (Ticker: SPXT) – which tracks the S&P 500 Ex-Information Technology TR Index USD – the material importance of the technology sector towards the US equity asset class is truly evident.

For investors interested in gaining concentrated exposure to these companies, the MicroSectors FANG+ ETN (Ticker: FNGS) is linked to the performance of the NYSE FANG+ Index; as such, investors will have exposure to the five core “FANG” stocks--Facebook, Apple, Amazon, Netflix and Alphabet’s Google—plus another five actively-traded technology growth stocks.

It should be noted, an ETN – Exchange Traded Note – is similar to exchange-traded funds in that they trade on a stock exchange and track a benchmark index. However, it is considered an unsecured debt security issued by a bank, unlike an ETF which holds assets such as stocks, commodities, or currencies which are the basis of the price of the ETF; the return of an ETN is linked to a market index or other benchmark.

Alternatively, Roundhill Investments recently launched the Roundhill Big Tech ETF (Ticker: BIGT), which provides investors with concentrated exposure to five mega-cap technology companies known as the “FAAMG” stocks.

For investors that desire a more cross-sectional exposure to the information technology sector, investment solutions such as, Vanguard Information Technology ETF (Ticker: VGT), Technology Select Sector SPDR Fund (Ticker: XLK), and iShares US Technology ETF (Ticker: IYW) are solutions tailored to provide comprehensive exposure to the sector.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.