Here’s why tech stocks will go ‘nuts’ in 2015

Tech will go 'nuts' in 2015: Pro
Tech will go 'nuts' in 2015: Pro   

Technology stocks will go "nuts" in 2015 thanks to growth in the U.S. and the "normalization" of interest rates, HSBC told CNBC.

Rejecting the idea of bubble in technology equities, HSBC Global Asset Management's head of absolute return, Charlie Morris, said investors need to look at large cap growth stocks.

"There is a long way to go here. People have been chasing in the search for yield dividend stocks, corporate bonds and so on, that's the wrong place to be. The right place to be is in growth and you know U.S. large cap growth is the theme," Morris told CNBC in a TV interview.

The MSCI World Information Technology Index, which tracks stocks such as Google, Microsoft and Apple, has rallied 17.89 percent year-to-date, with many of the companies far outperforming the index. Apple has seen its share price rise 44 percent on the back of new products and the promise of its Apple Pay system. Facebook is up 37.7 percent while Microsoft has rallied 30.6 percent.

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Initial public offerings in the technology sector have been buoyant, with 84 flotations done in the first nine months of 2014, worth $43.7 billion, according to PwC. Chinese e-commerce giant Alibaba was the highlight of the year when it listed on the New York Stock Exchange in the biggest ever IPO. The stock has since rallied 16.3 percent.

"I think that that idea that the tech is a bubble is wrong. It is actually making a lot of money, a lot of these companies are very, very profitable and it will continue to go higher next year," Morris said.

Alibaba or Apple?

However, several other analysts have warned that investors should be cautious about which technology stocks they pick, with established companies like Apple and Microsoft, a safer punt than the likes of Alibaba.

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Trader on the floor of the New York Stock Exchange during Alibaba IPO, September 19, 2014
Adam Jeffery | CNBC
Trader on the floor of the New York Stock Exchange during Alibaba IPO, September 19, 2014

"In the last earnings season, the stocks with the highest valuations are not a problem as long as they justify it with earnings and but those that didn't have good numbers got pummelled," Jasper Lawler, market analyst at CMC Markets, told CNBC by phone.

"The most well-established within the growth element of the sector will be the last ones to see a correction. Do you want to go with a company like Apple? Or do you want to ride this short-term momentum and buy into Alibaba? Tech can't be the best-performing sector for years on end."

Social media 'tired'

Not all of the stocks in the sector have been darlings for investors. Google has seen its share price decline by 3.3 percent year to date, while Twitter has been one of the worst-performing companies in the sector, seeing its stock tanking 39 percent on the back of concern over falling user engagement with the micro-blogging site.

Investors should be weary of social media stocks next year, one analyst said, suggesting that users were getting bored of using the services.

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"Social media I want to avoid now," Michael Jarman, chief market strategist at H20 Markets, told CNBC by phone.

"It is tired, the model has been found out. It used to be a cool thing to tweet, but with some of the security problems and information leaks, I am finding a lot more people becoming less active."