The technology sector is back in the groove and dominating the stock market rally once again this year. The renewed confidence is driven by strong corporate earnings and optimism over artificial intelligence (AI). This has resulted in strong gains for tech ETFs, with many hitting a new one-year high.
Earnings Drive
Per the Earnings Trends report, total earnings of 46.8% of the technology companies that have reported so far are up 19.3% from the same period last year on 6.6% higher revenues, with 82.1% beating EPS estimates and 75% beating revenue estimates. The Q4 earnings and revenue growth rates for these tech companies are notably tracking higher than in other recent periods. However, the EPS and revenue beat percentages are tracking modestly below other recent periods and the 20-quarter average.
The “Magnificent Seven” has been the biggest engine of growth. These companies currently account for 28.6% of the S&P 500 index’s total market capitalization and are expected to bring in 19.5% of the index’s total earnings in 2024.
Four of the “Magnificent Seven” stocks — Meta Platforms (META), Amazon (AMZN), Microsoft (MSFT) and Apple (AAPL) — came up with stronger earnings. Meta Platforms soared 20.3% to a record high after it declared its first-ever dividend along with revenue and earnings beat on robust advertising sales in the holiday shopping period. Amazon.com jumped nearly 7% following the fourth-quarter revenue and earnings beat. New generative AI features in cloud and e-commerce businesses spurred robust growth during the critical holiday period (read: Meta Soars on Solid Q4 Earnings, First Dividend: ETFs to Buy).
Microsoft and Apple also beat earnings and revenue estimates. The world’s largest software maker posted the highest profit growth in more than two years and the strongest revenue growth since 2022. Meanwhile, the iPhone manufacturer returned to quarterly sales growth after four straight quarters of declines. However, shares of both companies dropped. Apple was weighed down by China concerns.
Alphabet (GOOGL) also declined following its quarterly earnings release. Though the company reported sluggish ad revenue, disappointing investors, it topped the revenue and earnings estimates.
Beyond “Magnificent Seven,” Netflix (NFLX) spread optimism in the sector despite missing on earnings. The networking giant added strong subscribers in the fourth quarter amid the company’s password-sharing crackdowns, pushing the shares up (read: Netflix Logs Best Week Since 2022: ETFs to Buy on High Momentum?).
ETFs at New Highs
We have highlighted some ETFs that hit new highs in the latest trading session on earnings drive.
iShares Expanded Tech Sector ETF (IGM – Free Report)
iShares Expanded Tech Sector ETF offers broad exposure to the technology sector and technology-related companies in the communication services and consumer discretionary sectors. It tracks the S&P North American Expanded Technology Sector Index, holding 280 stocks in its basket. iShares Expanded Tech Sector ETF has AUM of $3.8 billion and charges 41 bps in annual fees. It has a Zacks ETF Rank #1 (Strong Buy).
MicroSectors FANG+ ETN (FNGS – Free Report)
This ETN is linked to the performance of the NYSE FANG+ Index, which is equal-dollar weighted and designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. The note accounts for a 10% share in each of the stocks. MicroSectors FANG+ ETN has accumulated $241 million in its asset base and charges 58 bps in annual fees. It has a Zacks ETF Rank #3 (Hold) (read: Netflix Logs Best Week Since 2022: ETFs to Buy on High Momentum?).
First Trust Expanded Technology ETF (XPND – Free Report)
First Trust Expanded Technology ETF is an actively managed ETF offering broad exposure to the technology sector. It holds 50 bps in fees per year and charges 65 bps in annual fees. First Trust Expanded Technology ETF has managed assets worth $12.3 million in its asset base.
iShares U.S. Tech Independence Focused ETF (IETC – Free Report)
iShares U.S. Tech Independence Focused ETF is an actively managed ETF providing exposure to U.S. companies with a focus on the country’s tech independence. It holds 168 stocks in its basket and charges 18 bps in annual fees. iShares U.S. Tech Independence Focused ETF has accumulated $191.4 million in its asset base.
First Trust Dow Jones Internet Index Fund (FDN – Free Report)
With AUM of $6.1 billion, First Trust Dow Jones Internet Index Fund offers exposure to the largest and most actively traded stocks of U.S. companies in the Internet industry. It follows the Dow Jones Internet Composite Index, holding 41 stocks in its basket. First Trust Dow Jones Internet Index Fund charges 52 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: New Normal Trend to Stay in 2024? ETFs in Focus).
Invesco NASDAQ Internet ETF (PNQI – Free Report)
Invesco NASDAQ Internet ETF follows the Nasdaq CTA Internet Index, which measures the performance of companies engaged in Internet-related businesses listed on the New York Stock Exchange, NYSE American, Cboe Exchange or The Nasdaq Stock Market. The product holds 84 stocks in its basket. Invesco NASDAQ Internet ETF has amassed $710.3 million in its asset base and charges 60 bps in fees per year.
iShares U.S. Tech Breakthrough Multisector ETF (TECB – Free Report)
iShares U.S. Tech Breakthrough Multisector ETF provides access to companies at the forefront of innovation in the tech sector and beyond by tracking the NYSE FactSet U.S. Tech Breakthrough Index. It holds 175 stocks in its basket with AUM of $356.7 million and expense ratio of 0.40%.
Roundhill Ball Metaverse ETF (METV – Free Report)
Roundhill Ball Metaverse ETF is designed to offer investors exposure to the Metaverse by tracking the Ball Metaverse Index. It holds 47 stocks in the basket. Roundhill Ball Metaverse ETF has accumulated $429.8 million in its asset base and charges 59 bps in fees per year.
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