Tech stocks are on track for their best year in a decade — and set to rise higher with the rollout of 5G
- The S&P 500 information technology sector is up more than 48% year-to-date and on track for its best year since 2009.
- The sector has seen rapid growth from soaring Apple stock and triple-digit gains from its best performing semiconductor stocks like Advanced Micro Devices.
- The index, made up of 70 tech companies, is also poised to surge in the new year, as the rollout of 5G-capable phones will fuel gains for device makers and their supply chain providers, according to numerous analysts.
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Tech stocks are days away from posting their best year since 2009, soaring as chipmakers and device companies gear up for the implementation of 5G networks.
The S&P 500 information technology index is up more than 48% year-to-date, compared to the broader index's 29% gain. The tech sector is also the best performing subset of the major index, with the communications services sector following with a 31% year-to-date gain.
The S&P tech sector, made up of 70 companies, was led by Apple's 80% surge through 2019 and several rising semiconductor stocks. Semiconductor company Advanced Micro Devices was the biggest winner of the index with its 153% year-to-date leap. Chipmaker peers Lam Research, KLA, and Qorvo were close behind, all gaining more than 90% through 2019.
Only seven of the 70 index components are down in 2019.
The year-to-date performance is the biggest leap since the subset posted a 60% gain in 2009. Part of that year's jump came from the recovery of the ailing stock market, as the financial crisis dragged on stocks and allowed traders to buy in at the lowest prices in years. Since then, tech firms have enjoyed massive windfalls from continued growth in the smartphone market, growing interconnectivity, and the introduction of new personal devices.
Apple is the index's eighth-best stock of 2019, but its massive market cap made it the biggest driver for the tech sector's outperformance. The Cupertino, California-based company soared as it shifted focus from its slowing iPhone sales to growth in its wearables and services businesses. Its new iPhone 11 sold better than analysts first expected after its fall reveal, further supporting the tech giant's stock gains.
The proliferation of 5G in the new year could push the tech sector even higher. Apple is set to kick off an iPhone "supercycle" in 2020, Wedbush analyst Dan Ives said in a December 22 note, adding that the addition of 5G to its next lineup will "open up the floodgates on iPhone upgrades."
Bank of America similarly lifted its Apple price objective due to positive sentiment around 5G upgrades, noting on December 11 that new technology will drive more than 200 million annual iPhone sales for at least three years. The analysts boosted their target price to $290 from $270.
Apple isn't the only company poised to benefit from the next-generation network. The companies in smartphone makers' supply chains will play a crucial role in delivering 5G-capable hardware. Sony, Qualcomm, and Taiwan Semiconductor are just some of the semiconductor companies positioned to benefit from the 5G ramp-up, Rosenblatt Securities analyst Jun Zhang said in a December 12 note.
Bank of America expects supply chain firms' "outperformance to continue into 2020," naming Micron, Qualcomm, and TSMC as stocks they expect to post "strong multi-year growth" alongside 5G's expansion.
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