The Nasdaq is leading the charge in breaking records, with technology stocks and related exchange traded funds pushing ever higher, and the growth segment won’t likely be letting up anytime soon.
The PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech heavy Nasdaq-100, has gained 17.6% over the past year while the Nasdaq Composite has broken past its dotcom-era highs.
Meanwhile, the Technology Select Sector SPDR (NYSEArca: XLK) rose 23.5%, iShares U.S. Technology ETF (NYSEArca: IYW) increased 23.9% and Vanguard Information Technology ETF (NYSEArca: VGT) advanced 24.2% over the past year.
The tech segment has quickly grown but valuations are not that nerve inducing just yet, with the technology sector trading at 22 times earnings, compared to the lofty 70 times P/E during the height of the 2000 dotcom boom, reports Ton Braithwaite for the Financial Times.
“There has been a renewed emphasis on profitability and not just growth,” John Kolz at Credit Suisse told the Financial Times. “Is that because growth was harder to come by? Or was that the right thing to do?”
Technology companies are still sitting on cash hoards that can be deployed in ways to improve value with investors. We are already seeing an increase uptick in company share buybacks and tech firms are now even issuing dividends.
The sector could even see more free cash on hand if Congress proceeds with plans to cut down capital gains on repatriated earnings or follow in President-elect Donald Trump’s proposed repatriation tax holiday policy that would encourage large multi-national companies to bring back hundreds of billions of dollars in cash to the U.S. for possible use in dividends, deals or other projects. Trump plans to levy a 10% repatriation tax on U.S. companies’ overseas profits from foreign subsidiaries, compared to the current 35% tax rate.
Meanwhile, the industry continues to grow through innovation as more shift to cloud, progress into artificial intelligence and adopt internet of all things devices.
For more information on the tech sector, visit our technology category.