Tech stocks just wrapped up one of their best years in past two decades after 2022 slump

Tech
stocks
rebounded
from
a
disastrous
2022
and
lifted
the
Nasdaq
to
one
of
its
strongest
years
in
the
past
two
decades.

After
last
year’s
33%

plunge,
the
tech-heavy
Nasdaq
finished
2023
up
43%,
its
best
year
since
2020,
which
was
narrowly
higher.
The
gain
was
also
just
shy
of
the
index’s
performance
in
2009.
Those
are
the
only
two
years
with
bigger
gains
dating
back
to
2003,
when
stocks
were
coming
out
of
the
dot-com
crash.

The
Nasdaq
is
now
just
6.5%
below
its
record
high
it
reached
in
November
2021.

Across
the
industry,
the
big
story
this
year
was
a
return
to
risk,
driven
by
the
Federal
Reserve

halting
its
interest
rate
hikes
and
a
more
stable
outlook
on
inflation.
Companies
also
benefited
from
the
cost-cutting
measures
they
put
in
place
starting
late
last
year
to
focus
on
efficiency
and
bolstering
profit
margins.

“Once
you
have
a
Fed
that’s
backing
off,
no
mas,
in
terms
of
rate
hikes,
you
can
get
back
to
the
business
of
pricing
companies
properly
—
how
much
money
do
they
make,
what
kind
of
multiple
do
you
put
on
it,”
Kevin
Simpson,
founder
of
Capital
Wealth
Planning,
told
CNBC’s
“Halftime
Report”
on
Tuesday.
“It
can
continue
into
2024.”

While
the
tech
industry
got
a
big
boost
from
the
macro
environment
and
the
prospect
of
lower
borrowing
costs,
the
emergence
of

generative
artificial
intelligence
drove
excitement
in
the
sector
and
pushed
companies
to
invest
in
what’s
viewed
as
the
next
big
thing.

Nvidia
was
the
big
winner
in
the
AI
rush.
The
chipmaker’s
stock
price
soared
239%
in
2023,
as
large
cloud
vendors
and
heavily
funded
startups
snapped
up
the
company’s
graphics
processing
units
(GPUs),
which
are
needed
to
train
and
run
advanced
AI
models.
In
the
first
three
quarters
of
2023,
Nvidia generated $17.5
billion
in
net
income,
up
more
than
sixfold
from
the
prior
year.
Revenue
in
the
latest
quarter
tripled.

Jensen
Huang,
Nvidia’s
CEO,
said
in
March
that
AI’s
“iPhone
moment”
has
begun.

“Startups
are
racing
to
build
disruptive
products
and
business
models,
while
incumbents
are
looking
to
respond,”
Huang
said
at
Nvidia’s
developers
conference.
“Generative
AI
has
triggered
a
sense
of
urgency
in
enterprises
worldwide
to
develop
AI
strategies.”

Consumers
got
to
know
about
generative
AI
thanks
to
OpenAI’s
ChatGPT,
which
the


Microsoft-backed
company
released
in
late
2022.
The
chatbot
allowed
users
to
type
in
a
few
words
of
text
and
start
a
conversation
that
could
produce
sophisticated
responses
in
an
instant.

Developers
started
using
generative
AI
to
create
tools
for
booking
travel,
creating
marketing
materials,
enhancing
customer
service
and
even
coding
software.
Microsoft,
Google,


Meta
and


Amazon
touted
their
hefty
investments
in
generative
AI
as
they
embedded
the
tech
across
product
suites.

Amazon
CEO
Andy
Jassy
said
on
his
company’s

earnings
call
in
October
that
generative
AI
will
likely
produce
tens
of
billions
of
dollars
in
revenue
for
Amazon
Web
Services
in
the
next
few
years,
adding
that
Amazon
is
using
the
models
to
forecast
inventory,
establish
transportation
routes
for
drivers,
help
third-party
sellers
create
product
pages
and
help
advertisers
generate
images.

“We
have
been
surprised
at
the
pace
of
growth
in
generative
AI,”
Jassy
said.
“Our
generative
AI
business
is
growing
very,
very
quickly.
Almost
by
any
measure
it’s
a
pretty
significant
business
for
us
already.
And
yet
I
would
also
say
that
companies
are
still
in
the
relatively
early
stages.”

Amazon
shares
climbed
81%
in
2023,
their
best
year
since
2015.

Microsoft
investors
enjoyed
a
rally
this
year
unlike
anything
they’d
seen
since
2009,
with
shares
of
the
software
company
climbing
58%.

In
addition
to
its
investment
in
OpenAI,
Microsoft
integrated
the
technology
into
products
like
Bing,
Office
and
Windows.

Copilot
became
the
brand
for
its
broad
generative
AI
service,
and
CEO

Satya
Nadella
described
Microsoft
last
month
as

“the
Copilot
company.”

“Microsoft’s
partnership
with
OpenAI
and
subsequent
product
innovation
through
2023
has
resulted
in
a
market
dynamic
shift,”
Michael
Turrin,
a
Wells
Fargo
analyst
who
recommends
buying
the
stock,
wrote
in
a
Dec.
20
note
to
clients.
“Many
now
view
MSFT
as
the
outright
leader
in
the
early
AI
wars
(even
ahead
of
market
share
leader
AWS).”

Meanwhile,
Microsoft
has
been
cranking
out
profits
at
a
historic
rate.
In
its

latest
earnings
report,
Microsoft
said
its
gross
margin
exceeded
71%
for
the
first
time
since
2013,
when

Steve
Ballmer
ran
the
company.
Microsoft
has
found
ways
to
more
efficiently
run
its
data
centers
and
has
lowered
reliance
on
hardware,
resulting
in
higher
margins
for
the
segment
containing
Windows,
Xbox
and
search.

After
Nvidia,
the
biggest
stock
pop
among
mega-cap
tech
companies
was
in
shares
of


Meta,
which
jumped
almost
200%.
Nvidia
and
Meta
were
by
far
the
two
top
performers
in
the
S&P
500.

Meta’s

rally
was
sparked
in
February,
when
CEO

Mark
Zuckerberg,
who
founded
the
company
in
2004,
said
2023
would
be
the
company’s

“year
of
efficiency”
after
the
stock

plummeted
64%
in
2022
due
largely
to
three
straight
quarters
of
declining
revenue.

The
company
cut
more
than
20,000
jobs,
proving
to
Wall
Street
it
was
serious
about
streamlining
its
expenses.
Then
growth
returned
as
Facebook
picked
up
market
share
in
digital
advertising.
For
the
third
quarter,
Meta recorded expansion
of
23%,
its
sharpest
increase
in
two
years. 

Like
Meta,


Uber
wasn’t
around
during
the
dot-com
crash.
The
ride-hailing
company
was
founded
in
2009,
during
the
depths
of
the
financial
crisis,
and
became
a
tech
darling
in
the
ensuing
years,
when
investors
favored
innovation
and
growth
over
profit.

Uber

went
public
in
2019,
but
for
a
long
time
battled
the
notion
that
it
could
never
be
profitable
because
so
much
of
its
revenue
went
to
paying
drivers.
But
the
economic
model
finally
began
to
work
late
last
year,
for
both
its
rideshare
and
food
delivery
businesses.

That
all
allowed
Uber
to
achieve
a
major
investor
milestone
earlier
this
month,
when
the
stock
was

added
to
the
S&P
500.
Members
of
the
index
must
have
positive
earnings
in
the
most
recent
quarter
and
over
the
prior
four
quarters
in
total,
according
to
S&P’s
rules.
Uber
reported
net
income
of
$221
million
on
$9.29
billion
in
revenue
for
its third
quarter,
and
in
the
past
four
quarters
altogether,
it
generated
more
than
$1
billion
in
profit.

Uber
shares
climbed
to
a
record
this
week
and
jumped
149%
for
the
year.
The
stock,
which
is
listed
on
the
New
York
Stock
Exchange,
finished
the
year
as
the
sixth-biggest
gainer
in
the
S&P
500.

Despite
the
tech
rally
in
2023,
there
was
a
dearth
of
new
opportunities
for
public
investors
during
the
year.
After
a

dismal
2022
for
tech
IPOs,
very
few
names
came
to
market
in
2023.
The
three
most
notable
IPOs
—


Instacart,

Arm
and


Klaviyo
—
all
took
place
during
a
one-week
stretch
in
September.

For
most
late-stage
companies
in
the
IPO
pipeline,
more
work
needs
to
be
done.
The
public
market
remains
unwelcoming
for
cash-burning
companies
that
have
yet
to
show
they
can
be
sustainably
profitable,
which
is
a
problem
for
the
many
startups
that

raised
mountains
of
cash
during
the
zero-interest
days
of
2020
and
2021.

Even
for
profitable
software
and
internet
companies,
multiples
have
contracted,
meaning
the
valuation
startups
achieved
in
the
private
market
will
require
many
of
them
to
take
a
haircut
when
going
public.

Byron
Lichtenstein,
a
managing
director
at
venture
firm
Insight
Partners,
called
2023
“the
great
reset.”
He
said
the
companies
best
positioned
for
IPOs
are
unlikely
to
debut
until
the
back
half
of
2024
at
the
earliest.
In
the
meantime,
they’ll
be
making
necessary
preparations,
such
as
hiring
independent
board
members
and
spending
on
IT
and
accounting
to
make
sure
they’re
ready.

“You
have
this
dynamic
of
where
expectations
were
in
’21
and
the
prices
that
were
paid
then,”
Lichtenstein
said
in
an
interview.
“We’re
still
dealing
with
a
little
bit
of
that
hangover.”

—CNBC’s
Jonathan
Vanian
contributed
to
this
report

WATCH:

Rate-sensitive
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stocks
making
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