The year 2020 was a transformative one for many tech companies. The COVID-19 pandemic caused more people to shop online, work remotely, and access more cloud-based services, and companies that were prepared for that unprecedented shift generated big profits for investors.
But as this challenging year ends, investors are likely wondering which trends will dominate tech stocks next year. Here are my top seven predictions.
1. The e-commerce acceleration will continue
Amazon's online orders surged as brick-and-mortar stores closed, Shopify helped smaller merchants launch independent online stores throughout the crisis, and Etsy's artisan marketplace thrived as large retailers struggled with supply chain and logistics disruptions.
Those companies will all face tougher year-over-year comparisons as the pandemic ends. However, the pandemic reportedly accelerated the shift from physical to digital stores by about five years, according to IBM's U.S. Retail Index, so the e-commerce market should remain robust in 2021 and beyond.
2. Fintech stocks will keep outperforming bank stocks
The growth of the e-commerce market also accelerated the shift from cash to digital payments. PayPal's (PYPL 0.79%) total payment volume rose 36% year over year in constant currency terms last quarter, marking its strongest growth ever. Square's (SQ 1.02%) Cash App hit 30 million active users in June, up from 24 million at the end of 2019.
That secular shift should help PayPal and Square, which both generated triple-digit percentage returns for shareholders in 2020, outperform traditional banks, which are being crushed by historically low interest rates, next year.
3. The streaming wars will get uglier
The pandemic caused people to stream more shows and movies at home, which was a dream scenario for companies like Netflix (NFLX 0.39%) and a nightmare for movie theaters. Disney and AT&T have also been fanning those flames by simultaneously releasing some of their biggest movies on their streaming platforms and in theaters, and that trend will likely continue in 2021.
However, investors should remember that Netflix remains the only profitable player in the streaming market, and underdogs like Disney and AT&T could rack up even bigger losses next year as they chase Netflix's worldwide audience of nearly 200 million subscribers.
4. The social media underdogs will rise
Facebook and Twitter are often considered the top social media platforms, but underdogs like Snap (SNAP 2.24%) and Pinterest (PINS 2.62%) are carving out resilient niches. Snap and Pinterest both generated much faster revenue growth than Facebook and Twitter over the past year, and their massive stock rallies reflect that shift:
If Facebook and Twitter's ongoing problems with unchecked hate speech and fake news continue, exhausted users could spend more time on Pinterest and Snapchat instead -- and take lots of advertisers with them.
5. Intel's downward spiral will continue
Intel (INTC 1.30%) suffered massive setbacks over the past two years, including a CPU shortage, production issues with its next-gen chips, and an ongoing loss of the PC market to smaller rival AMD.
Intel's stock already lost a fifth of its value this year as it grappled with those problems, but I expect that pain to continue in 2021. Its CEO is relying too heavily on cost-cutting measures and buybacks to boost its earnings instead of resolving its R&D and production issues, and those myopic moves could leave it even more vulnerable to AMD.
6. The 5G market might be overrated
Many telecom companies, smartphone makers, and network equipment manufacturers are citing the expansion of 5G networks -- which can theoretically provide speeds up to 100 times faster than 4G networks -- as a major catalyst next year.
However, 5G base stations also consume about three times as much power as 4G base stations, making them much more expensive for carriers to operate. Many customers who were already struggling throughout the pandemic are also probably not eager to upgrade to pricier 5G plans.
Moreover, a recent study by Opensignal revealed that 5G networks were nowhere close to being "100 times" faster than 4G networks. I believe 5G upgrades will still generate tailwinds for many companies next year, but those gains might not live up to the hype.
7. The U.S.-China tech war will continue
Lastly, the ongoing tech war between the U.S. and China will likely continue next year, even after the Biden administration takes over. The Trump administration hit Chinese tech companies like Huawei with sanctions and cut them off from American technologies, but that was merely an escalation of a conflict that started before Trump took office.
The Obama administration previously blocked Intel from selling chips to Chinese supercomputer makers in 2015 and blocked the sale of German chipmaker Aixtron to a Chinese firm in 2016. At the time, The Wall Street Journal claimed Obama's decisions could "set the stage for greater tensions between his successor, Donald J. Trump, and a Chinese government determined to bolster its technological capabilities."
Therefore, the Biden administration, which already faces bipartisan pressure to stay tough on China, will likely continue that tech war -- which could widen the rift between U.S. and Chinese tech companies.