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Quarter-End Insights

We'd Welcome a Pullback in Overvalued Tech

We're still fond of software and cybersecurity firms.

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Technology has significantly outperformed the broader market in 2020 and over the past 12 months. We're hesitant to say that tech is in a bubble, as we see robust fundamental tailwinds supporting future growth for most of our coverage, such as cloud computing, remote working, 5G network rollouts, and the "Internet of Things." But a pullback in tech stocks would likely be healthy, as we view the sector as largely overvalued, with few buying opportunities today.

As of Sept. 23, the Morningstar US Technology Index was up a whopping 38.8% on a trailing 12-month basis, vastly outperforming the U.S. equity market, which is up 10.3% on a TTM basis. Over the past three months, tech also outperformed the broader market, up 6.0% compared with the broader U.S. equity market, up 5.1%.

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Brian Colello does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.