2022 was a difficult year for tech investors… 

Looking in the rearview mirror, markets in general did poorly, with the S&P 500 down 20% for the year, the Nasdaq posted a decline of over 33% on the year.

Losses were especially big in well-known technology names, with trillions in market value lost in some of the tech darlings of years past. 

Amazon alone lost over $1 trillion in market capitalization this year, with other “Big Tech” names, like Meta (Facebook), Apple and Microsoft vying for second place with valuation reductions in the high-12-figure range.

It’s also been a rough ride for innovation stocks, including cultish stocks like Tesla Motors. 

Tesla peaked near the end of 2021, giving up over 70% of its value last year — and it’s not alone. Lots of innovation names lost 80–90% in 2022, with markets selling off the good along with the bad — the baby with the bath water as it were. 

Cathie Wood’s ARK Innovation ETF is a great example of this, losing over 67% of its value as the market turned against growth names it loved in 2020 and 2021, like Zoom, Tesla and Teladoc.

But despite the bloodletting, big growth trends remain in place that will elevate technology stocks in 2023…

Painting a Positive Picture for 2023

Rising labor costs and labor shortages will create huge demand for software and automation to increase productivity and reduce costs. 

The rise of artificial intelligence and machine learning will create opportunities for innovators and their investors. 

As the capabilities of AI systems increase while costs decrease, huge markets will open for companies that work with AI technologies like predictive analytics, image recognition and natural language processing. 

The same is true of cloud computing technologies, which grew strongly in 2022 and are poised to continue doing so. 

E-commerce and online retail surged in 2020 and 2021 as people stayed home during the COVID-19 lockdowns. 

While we’ve seen some evidence of slowing down in 2022, the trend for continued growth remains in place. 

Companies that operate online marketplaces and provide e-commerce services will see continuing strong demand growth.

Another place to look for strong growth is in health care... 

Aging populations and a shortage of hands mean that there will be increased demand and pressure to develop medical technologies like telemedicine, medical devices, software as well as new therapies. 

Moreover, the environment for tech stocks is likely to be far different in 2023 versus 2022. 

2022 could be called the year of the COVID-19 hangover, where effects of the response to the virus like lockdowns created severe supply chain issues and social changes. 

The way I’m seeing it, 2023 is likely to be a much more “normal environment.”

Thanks to the coronavirus and our reaction, last year saw inflation rise to levels not seen in decades, along with an aggressive response on the part of the Federal Reserve to contain it, with the sharpest rate hikes in decades. 

This environment was negative for stocks in 2022. 

But we’ve already seen inflation peak in the U.S. and the Fed isn’t likely to hike aggressively this year — in fact, if measures of inflation continue to soften, as is likely, we might not see the Fed hike at all this year. 

Taken together, disinflation and a softer Fed will be bullish for tech stocks.

The same is true for the political environment, where a realignment of the parties in power took place during last November’s election. 

Democrats no longer have sole control of government, now that Republicans have taken control of the House of Representatives. 

Divided government means more policy stability and a lower likelihood of disruptive changes. If history is any guide, the new configuration in Washington, D.C., will lead to stock market gains in 2023.

In short, with so many economic factors reversing this year, a lot of what worked for investors last year won’t work this year — and a lot of what didn’t should. 

I expect select growth and innovation stocks that were punished in 2022 to come back into favor, and especially in the second half of the year.