Shares of Amazon are up just 5% in 2021, with e-commerce slowing and regulatory threats looming.
PATRICK T. FALLON/AFP/Getty Images
At least we’ll never have to live through 2021 again. The second year of the Covid era proved to be deceptively tricky for tech investors. While the Nasdaq Composite—a reasonable proxy for the sector—was up 23% for the year through the middle of this past week, that trailed the return of the S&P 500 by about five percentage points. It’s the first time that’s happened since 2016. Tech stocks overall were solid, but the indexes proved misleading, with strong performances by a few of the largest components masking some ugly stuff under the surface.
Tech was whipsawed by Covid-related newsflow, anticipation of higher rates, the stuttering progress of the reopening, and newfound skepticism about excessive valuations. While 2020 highfliers like Zoom Video Communications (ticker: ZM), DocuSign (DOCU), and Okta
(OKTA) fell into the red, investors scored big gains with legacy tech names like Oracle
(ORCL), HP Inc. (HPQ), and Dell Technologies
(DELL). Software may still be eating the world, but in 2021, software stocks may have eaten your portfolio.
Here are the key takeaways from tech’s wild year:
The megacaps diverged. In 2020, all five of the tech giants—Apple, Microsoft, Alphabet, Facebook and Amazon.com—rallied more than 30%. There were further gains in 2021, but the returns varied widely.
Alphabet
(GOOGL), the group laggard in 2020 with just a 31% gain, moved to the front of the pack in 2021, rallying 68%, thanks to strong demand for online ads and impressive growth in the company’s cloud business. Apple
(AAPL) improved 36%, on top of last year’s 81% spike, driving its market cap to the cusp of $3 trillion. Strong earnings, impressive iPhone demand, and growing buzz about the possible launch of a virtual and augmented reality headset boosted Apple shares. Meanwhile, Microsoft
(MSFT) rallied 54%, the best performance of any Dow Jones Industrial Average component, accounting for a quarter of the blue chip index’s rally, as demand for cloud computing continued to soar.
Meta Platforms
(FB) rallied 22% on the year despite a blizzard of bad publicity about the ill effects of Facebook and Instagram on users. Meanwhile, Apple’s crackdown on tracking iPhone user activity hurt Meta’s ad targeting ability, just as regulatory pressures grew. The newly named Meta also launched a $10 billion plan to build out the metaverse, a bold call that might not pay off for years, if ever.
Amazon
(AMZN) was the laggard, with just a 5% gain. Growth in its core e-commerce business slowed as some shoppers ventured to physical stores; investors fear holiday-quarter sales will miss estimates. Founder Jeff Bezos stepped down as CEO, while longtime critic Lina Khan took over as Federal Trade Commission chair, heightening regulatory fears. Growth remains robust for the Amazon Web Services cloud business, despite a recent series of outages. After a lackluster year, the stock is the most appealing of the tech giants for 2022.
Nvidia
(NVDA) could be next in the trillion-dollar club, thanks to a 132% rally that lifted its market value to $750 billion. Once mostly a graphics chip company, Nvidia is now a play on almost every buzzy tech trend—cloud computing, cryptocurrency mining, artificial intelligence, autonomous cars, and even the metaverse. Revenue surged 50% in the latest quarter.
Videogame stocks suffered, with Activision Blizzard
(ATVI) down nearly 30%, Take-Two Interactive
(TTWO) off 14%, and Electronic Arts
(EA) down 7%. Activision’s slide reflected a sexual misconduct scandal that has prompted calls for CEO Bobby Kotick to resign. But that’s not the only issue. This was supposed to be a big year for the videogame software industry, but component shortages made it harder for consumers to get new consoles.
Telcos struggled, with AT&T (T) off 14%, T-Mobile
(TMUS) down 12%, and Verizon Communications (VZ) 10% lower. Fierce competition for subscribers has spurred aggressive discounts on mobile phones, which is good for Apple and for consumers, but less good for the carriers.
Streaming was no cure-all for content companies, with ViacomCBS (VIAC) and Discovery
(DISCA) each down 19% and Walt Disney
(DIS) off 16%. Roku
(ROKU) fell 27%. Their challenge is managing declining linear TV while creating a profitable streaming model, all with movie theaters struggling to regain audience. Chief nemesis Netflix
(NFLX) rose 17%.
Cloud plays dominated, but it was hardware rather than software that reaped the biggest gains. Arista Networks (ANET) doubled, on strong demand for its networking wares, in particular from cloud players. Other networking stocks flourished, with Cisco Systems
(CSCO) up 51% and Ciena
(CIEN) up 49%. Another cloud winner: disk-drive maker Seagate Technology
(STX), which rallied 83%. Once mostly a PC play, Seagate now sells drives for enterprise applications.
Chip stocks soared for good reason. Component shortages drove up prices, while demand from the automotive, mobile phone, cloud, and PC sectors accelerated. The Philadelphia Semiconductor Sector Index, or SOX, rallied 47%. Chip equipment stocks also thrived— Applied Materials
(AMAT) spiked 89%, while KLA
(KLAC) jumped 70%. One surprising laggard was Taiwan Semiconductor
(TSM), up just 12%. The world’s largest contract chip maker is building out new fabs to catch up with demand. One issue: rising tensions between Taiwan and mainland China. There are fears that a Hong Kong-style conflict could disrupt operations—it’s a growing risk not just for Taiwan Semi, but for the entire tech sector.
Write to Eric J. Savitz at [email protected]
