In the first half of 2023, technology stocks experienced their strongest start since 1983. The Nasdaq, a tech-heavy index, saw a 32% gain, the largest first-half jump in decades. This achievement is remarkable considering the various transformations the tech industry has undergone over the past forty years. Historical periods like the PC software boom, the dot-com bubble, and the rise of trillion-dollar companies did not witness a first-half performance as impressive as 2023.
This year’s tech rally is happening despite concerns about a potential recession and a banking crisis in the U.S., with Silicon Valley Bank collapsing in March. The Federal Reserve has also raised interest rates to their highest level since 2007. However, the momentum and fear of missing out on tech investments have played a significant role in driving the market.
Following a challenging year in 2022, marked by a one-third decline in the Nasdaq, the focus shifted to cost-cutting and efficiency. Major tech companies like Alphabet, Meta, and Amazon underwent mass layoffs, leading to improved earnings and a more realistic growth outlook. Companies like Meta and Tesla, which suffered significant losses in 2022, have more than doubled in value in 2023. Alphabet is up 36% after a 39% drop the previous year.
These companies did not exist the last time the Nasdaq experienced such a strong start. Meta CEO Mark Zuckerberg, who founded Facebook (now Meta) in 2004, was born in 1984, the same year Apple introduced its Lisa desktop computer. Tesla was founded in 2003, five years after the precursor to Alphabet, Google.
As 2023 began, artificial intelligence (AI) and generative AI chatbots garnered attention. Microsoft-backed OpenAI, known for its ChatGPT program, gained recognition, and investments poured into Nvidia, whose chips power AI advancements. Nvidia’s stock surged 190% in the first half of the year, pushing its market capitalization above $1 trillion.
Tech dominance is expected to continue due to the ongoing buzz around AI. However, Bryn Talkington, managing partner at Requisite Capital Management, noted that Nvidia’s exceptional growth is not representative of the entire industry. Large companies working on AI heavily rely on Nvidia’s technology, positioning the company as the dominant player in the field.
While Apple’s gains have not been as dramatic, its stock has still risen by 50% in 2023, reaching a record valuation and propelling the company’s market capitalization to $3 trillion. The announcement of Apple’s Vision Pro headset, its first major product release since 2014, has reignited investor enthusiasm. The starting price of $3,499 seems high, but it pales in comparison to the $10,000 starting price of Apple’s Lisa computer in 1983.
In the equity markets, tech was the standout story of the first half of 2023, with the broader S&P 500 gaining 16% and the Dow Jones Industrial Average rising by only 2.9%. However, heading into the second half, investors face potential red flags. Global economic concerns persist due to the war in Russia and Ukraine and ongoing trade tensions with China. Short-term interest rates are now above 5%, offering risk-free returns in the mid-single digits.
Furthermore, the absence of a tech IPO market raises skepticism. Emerging tech companies are holding back from going public, waiting for better predictability in their financials. The last notable venture capital-backed tech IPO in the U.S. occurred in late 2021, and industry insiders anticipate a quiet second half of the year for IPO activity.
Jim Tierney, chief investment officer of U.S. concentrated growth at AllianceBernstein, acknowledges the challenges facing investors. While he recognizes the potential of