In the past, technology stocks were not the place to be in a slowing growth, risk-off market. Historically, the sector behaved in a highly cyclical manner, and was one of the worst performers during recessions. Much has changed in recent years, with the sector more highly concentrated in profitable, fundamentally healthy, businesses.
For comparison, during the Tech Bubble, 62% of Russell 1000 technology companies were unprofitable. These companies accounted for about 35% of the sector by market capitalization. Today, the percentage of unprofitable companies stands at 32% (seemingly still quite high), but that only equated to 6.7% of the sector by market capitalization.
Our view continues to be that higher interest rates and falling earnings growth will bring profitability to the forefront for investors. Given the evolution of technology business over the past two decades, we think the sector is far better positioned to withstand an economic downturn than history may indicate.
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