Individual investors are increasing bets on technology stocks

Tech stocks have taken a hit this year. Many individual investors have used this as an opportunity to double down.

The Nasdaq Composite Index—home of the big tech stocks that fueled the market’s decade-long rally—is down 21% in 2022. Shares of Amazon.com Inc.

AMZN 10.36%

and the parents of Google and Facebook META -1.01%

have also suffered double-digit declines, driven by higher interest rates and worsening attitudes about their growth prospects.

However, many of these stocks remain the most popular among individual investors who say they are confident of a recovery and expect companies to continue fueling the economy.

In late July, individual investors’ purchases of a basket of popular technology stocks hit their highest level since at least 2014, according to data from Vanda Research. The basket includes FAANG stocks—Facebook parent Meta Platforms Inc., Amazon, Apple Inc.

AAPL 3.28%

Netflix Inc.

and Google parent Alphabet Inc.

GOOG 1.79%

— along with a handful of others like Tesla Inc.

and Microsoft Corp.

Meanwhile, Apple, chip company Advanced Micro Devices Inc.

and the tech-heavy Invesco QQQ Trust exchange-traded fund have remained among the most popular individual bets since 2020.

Interest in technology-linked venture and leveraged funds and stocks such as Nvidia Corp.

has also swelled, a sign that investors have stepped in to play the wild swings in stocks.

It was a fruitful bet for many. Tech stocks have rallied of late, partly on investor hopes for a slower pace of rate hikes in the coming months. The Nasdaq gained 12% in July, its best month since April 2020, outperforming the broader S&P 500, which rose 9.1%.

Individual investor Jerry Lee says, “The market is seriously underestimating how much technology can really play in our lives.”


Photo:

Peggy Chen

“I’m extremely bullish on technology,” said Jerry Lee, a 27-year-old investor in New York who co-founded a startup that helps people find jobs. “The market is seriously underestimating how much technology can really play in our lives.”

In the coming days, investors will analyze earnings reports from companies such as AMD and PayPal Holdings Inc.

for more indications about the course of the market. Manufacturing and labor market data are also available.

Mr. Lee said he recently poured cash into a technology-focused fund that counts Apple and Nvidia among its biggest holdings, after years of pouring money into broad-based mutual funds. His experience working at companies like Google has made him optimistic about the industry’s future, he said.

Gabe Fisher owns shares in Meta Platforms, Amazon and Alphabet.


Photo:

Ethan Kaplan

Even last week, when many of the industry’s leaders, including Apple, Amazon and Alphabet, warned that their growth was slowing, investors pushed stocks higher and expressed confidence in the companies’ ability to weather an uncertain economy. Apple posted its best month since August 2020, while Amazon completed its best month since October 2009, helped by a 10% rise in its shares on Friday alone.

Many investors also pounced on the drop in shares of Facebook parent Meta Platforms. The stock was the top buy among individual investors at stockbroker Fidelity on Thursday, when it fell 5.2% in the wake of the social media giant’s first revenue decline. Tesla, Ford Motor Co.

and leveraged funds that track the tech-heavy Nasdaq-100 index were also widely traded that day.

Gabe Fisher, a 23-year-old investor near San Francisco, said he holds stocks such as Meta, Amazon and Alphabet.

“Even if these companies never grow at such a rapid pace, they are still companies that are so relevant and so prevalent that I will keep them,” Mr. Fisher said.

He said he also has a small position in Cathie Wood’s ARK Innovation Exchange-Traded Fund that he doesn’t plan to sell anytime soon, even though the fund has lost more than half its value this year.

Other investors have turned to riskier corners of the market. Technology tracking leveraged funds are the third and fourth most popular ETFs for individual investors to buy this year, behind funds that track the S&P 500 and Nasdaq-100 indexes. These funds allow investors to make turbocharged bets on the market and can double or triple the daily performance of a stock or index.

Many individual investors have also turned to the options market to bet on technology. Bullish bets that would pay off if Tesla shares rose were among the most traded in the options market, according to Vanda. Individual traders have spent more on Tesla call options on an average day this year than on Amazon, Nvidia and options linked to the Invesco QQQ Trust combined, according to Vanda. The firm analyzed the average premium spent on options that are out-of-the-money or far from where the stock is currently trading.

Jeff Durbin, a 59-year-old investor based in Naples, Fla., said he regrets missing an opportunity to buy big tech stocks decades ago.

It has acquired shares in companies such as artificial intelligence company Upstart Holdings Inc.

and Shopify Inc.

STORE -3.01%

— and hung on despite their sharp swings. Shopify, for example, fell 14% in a single session last week as it said it would cut about 10% of its global workforce. It hurts, but I missed out on things like Amazon and Netflix when they were cheap,” Mr. Durbin said. “Who will Amazon and Apple be 20 years from now?”

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