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Outlook for the technology sector in 2023
Technology investment

Outlook for the technology sector in 2023

It is clear that many companies grew too fast during the boom times and have now had to make significant headcount reductions.
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3 JAN, 2023

By RankiaPro Europe

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By Álvaro Antón Luna, abrdn Country Head for Iberia

Investors in the technology sector will remember 2022 as the year of the great downturn. After a long period of growth and companies' earnings consistently beating estimates, that was the year in which both of these variables, growth, and earnings, slowed.

In the future, margins and profitability will be much more important, which is a problem for some of the early-stage growth companies with a "growth at all costs" mentality. Currently, revenue expectations for 2023 are unclear, and investors may be hesitant to retake positions until growth estimates are more defined.

It is clear that many companies grew too fast during the boom times and have now had to make significant headcount reductions. Firms operating in the enterprise sector are holding up better than those with consumer exposure, as this is a technology that is betting on "digital transformation" as opposed to consumer and advertising-driven models. Cybersecurity in general is faring much better, given that it is a critical technology.

The outlook could remain shaky until expectations for 2023 become clearer. Fundamentals have slowed, but valuations remain attractive. Investors may continue to get better growth from technology than from many other areas of the market and, over the long term, structural tailwinds remain intact. This is because companies of all sizes and in all industries continue to need to "digitize" their businesses and use more software. There is no doubt that this trend is not going away.

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