2017 was fruitful year for tech stocks. The tech-centric NASDAQ Composite Index rallied more than 28%, outperforming the S&P 500's 19.8% gain. Investors familiar with the technology market might recall that 2017 was also particularly year for the FAANG stocks.
FAANG is an acronym that stands for some of the world’s most well-known, highly-regarded technology companies: Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Alphabet—the parent company that owns Google—(GOOG).
FAANG stocks closed 2017 with a bang and didn’t skip a beat. In fact, Facebook, Apple, Amazon, Netflix and Alphabet have all surged during the past few weeks, gaining 6.5%, 2.8%, 7.1%, 8.9%, and 5.7% respectively in 2018, keep up the torrid pace they rode into the New Year.
One of the (likely) high growth tech stocks for 2018 is Netflix. The California-based company specializes in streaming media—producing hit shows like House of Cards, Stranger Things, and Daredevil, to name a few.
Netflix is now looking to expand on its recent success by grabbing an increased share of the international streaming market. With the huge commercial success of programs like Stranger Things and House of Cards, the company is expected to make a large investment in more original programming this year.
Global social media giant Facebook has its own, less-sexy strategy for 2018: focusing on improving its security mechanisms for its two billion-plus users in the wake of the (alleged) Russian election interference drama that reared its ugly head last year.
According to Zacks Equity Research, as Facebook is investing heavily in original content, it’s expected that its ever-growing user base will easily offset the company's rising security and safety costs.
Expect Bigger Things in 2018
The overall prognosis for the tech market in 2018 is more of the same. Each of the FAANGS is expected to repatriate a large portion of its overseas cash – in large part due to President Trump’s corporate tax overhaul.
“According to the market research firm GBH Insights, roughly 90% of the cash that was taken home was utilized for dividend payments and share repurchases in the tax holiday that last occurred in 2004. But now, GBH Insights expects the firms to allocate 70% of the repatriated cash for capital returns,” notes Zacks Equity Research in a January 10 column.
In addition, the research firm expects shareholders (in particular holders of shares of Apple Inc.) to receive another dividend hike in 2018. Stock buybacks at higher prices are expected to continue to drive the share prices of high growth tech stocks.
However, the overseas cash won’t all get funneled into dividends and share buybacks. Much of it will go into new technologies, products, and services—setting these cutting-edge companies up for future growth.
“A significant portion of the cash will likely be allocated for research and development and for mergers and acquisitions. This is expected to brighten the prospects for tech stocks in 2018 and beyond,” Zacks writes.
As the leading tech companies devise new strategies to gain a larger foothold on the market, President Trump's tax reform bill will inevitably play an oversized role in boosting the overall value of tech stock shares – mainly because corporate income tax rate reductions will take effect immediately rather than in 2019.
Lower corporate tax rates will give the FAANGS and other high growth tech stocks more cash to grow their businesses in 2018. Lower income tax rates will give individual investors more cash to use on the stock market. That looks like a win-win for tech stocks in 2018.