What to Know Before Investing in Tech Stocks

You've probably heard of tech stocks in the news like Apple, Microsoft, or Zoom. And there's a lot to like about them. They're fast-growing, poised to benefit from a more technological world, and offer cutting-edge products and services.

But they have drawbacks, too. Tech stocks often trade at prices above their fair value because investors are willing to pay more for their potentially promising future. These high valuations come with high expectations, though. Good news or financial results could push these stocks higher, while the opposite could cause the stocks to fall.

Before investing in a tech stock, ask yourself these two questions: "Is it a good business?" and "What is it worth?"

Morningstar analysts help us answer the first question. They assign stocks an economic moat rating. It measures the strength of a company's competitive advantages and ability to fend off competition. Those that earn narrow or wide moat ratings can keep rivals at bay for at least 10 years.

The Morningstar Rating for stocks helps us answer the second question about worth. Stocks that receive 4- or 5-star ratings are trading below their Morningstar Fair Value Estimate, which tells investors what the long-term value of a stock is.

Check out Morningstar.com to see what our analysts think stocks are worth.