At the end of 2022, a great correction took place in the tech market. The heightened profits and demand of 2020–2021 came to an end and swathes of employees at the largest firms were laid off. The pandemic-era tech bubble had popped, and big tech firms saw half and more of their values abruptly wiped.
In 2023, a sluggish economy, fueled by rising interest rates, inflation, and high energy prices, has left total investment in UK tech down 57%. Here, we explore the causes and the opportunities the current climate can offer IoT investors.
Behind the struggle
2022 saw more than its fair share of financial and economic shocks. The NASDAQ dropped in value across four consecutive quarters and tech stocks fell harder than those of other markets. All in, it was the worst year for tech since the recession of 2008.
What’s behind the struggles? It’s complicated.
The high transport and energy costs driven by the war between Russia and Ukraine fed wider cost increases for UK businesses. To make ends meet, many spent less on advertising, hitting the big tech brands that rely heavily on ad revenue to turn a profit.
Having lost half to two-thirds of their value overnight, many like Alphabet and Meta, cut back by axing thousands of jobs.
Smaller firms didn’t fare better, with recently IPOed businesses losing up to 80% of their value. Factor in the end of the cheap money tech startups relied on, and you have a challenging landscape for businesses and those who want to invest in them.
Given the headlines, you’d be forgiven for giving tech investments a miss. But since September last year, interest rates have held steady, layoffs have largely stopped, and many see reasons to be hopeful.
Reasons to be positive
Profits may be down, but the outlook is trending up. Short-term losses mask longer-term upturns in the market and certain tech sectors are bucking the trends. So, there are many reasons to be positive about the tech investment landscape ahead.
Unlike in 2008, cash reserves are high, meaning mass-selloffs and busts are unlikely to occur.
Discounting the exceptional gains driven by 2020-2021 lockdowns, both profit and investment volumes are up. According to the State of European Tech report, investment has increased 35–40 % compared to 2019 and 2020 levels, leading the industry into the third biggest year ever for total raised funds.
In the wider landscape, the UK still ranks 3rd in the world for venture capital investments and 1st in Europe, raising double that of any other European country.
Tech is also a vast landscape, with many sectors that are doing well. Areas with a high impact on IoT like cybersecurity, automation and robotics, and generative AI are defying wider trends.
The UK AI market alone is set to grow from £16.9 billion in 2023 to over £800 billion by 2035. One in six UK organizations has already embraced AI technology and that figure is only set to increase.
For IoT investors, this means there’s still money to be made.
Investor outlook
While some tech investors may be diverting their funds elsewhere, many see the value and opportunities the current climate offers in the UK.
Some of the largest investment houses in the UK have seen success in AI-related stocks, even when other industry outlooks were poor. Some saw 1-year returns as high as 25% from leaning into AI-driven ventures.
Those familiar with investing during economic downturns know that “buying the dip” can lead to positive medium-term returns. Investors can take advantage of lower stock prices to buy in on strong businesses that will continue to gain value as the economy recovers.
For those newer to investing, there’s opportunity to buy good IoT stocks at comparatively low prices. For others, a chance to diversify their portfolio or get their foot into rapidly developing industries that are expected to overperform in the years ahead.
