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The technology sector has been on a selling spree lately thanks to renewed inflation fears. The ongoing economic recovery post pandemic has led to a surge in prices for broad-based commodities that could prompt the Federal Reserve to tighten policies earlier than expected. This has dampened the appeal for the stocks that rely on easy borrowing for superior growth.

Tech stocks tend to have higher-than-average price-to-earnings ratios, whose valuations depend heavily on future earnings. And with the astounding surge during the pandemic last year, these stocks have become expensive with lofty valuations.

The beaten-down price could be viewed as a solid entry point given that the Fed sees inflation as temporary. Additionally, the tech sector Q1 earnings have been solid with big five tech titans reporting blockbuster results. The five ‘Big Tech’ players as a whole earned $74 billion in earnings in the March quarter on $311.6 billion in revenues. This group’s Q1 earnings and revenues are up 104% and 29% from the year-earlier period, respectively. This suggests that the best growth days of the sector may be behind it.

Beyond the big five players, total Q1 earnings for the technology sector as a whole are expected to be up 50.3% from the same period last year on 23.4% higher revenues. Both earnings and revenue growth expectations are tracking much above the past four quarters and the coming four quarters.

Further, the sector paints a bright outlook as the global digital shift has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, artificial intelligence, machine learning, digital communication, and 5G technology will continue to drive the sector higher.

As such, investors should buy the dip in the sector. For them, we have highlighted some ETFs that are in red over the past week but have a solid upside potential given the encouraging fundamentals:

VanEck Vectors Digital Transformation ETF (DAPP - Free Report) - Down 7.9%

This new ETF aims to offer exposure to the companies that are at the forefront of the digital asset transformation, such as digital asset exchanges, payment gateways, digital asset mining operations, software services, equipment and technology or services to the digital asset operations, digital asset infrastructure businesses or companies facilitating commerce with the use of digital assets. The fund tracks the MVIS Global Digital Assets Equity Index and holds 26 securities in its basket. It charges 65 bps in annual fees and trades in an average daily volume of 84,000.

SmartETFs Advertising & Marketing Technology ETF (MRAD - Free Report) – Down 6.7%

This ETF seeks to invest in companies that are positioned to benefit from the disruption underway in the advertising and marketing industries. This includes companies that provide, support, or enable the following: programmatic, targeted, and data-driven advertising and advertising-related activities. The fund holds 30 stocks in its basket and has amassed $2.6 million in its asset base since debut last December. It charges 68 bps in annual fees and trades in an average daily volume of 1,000 shares.  

ARK Innovation ETF (ARKK - Free Report) – Down 6.3%

This is an actively managed fund seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvements, and advancements in scientific research related to the areas of DNA technologies (Genomic Revolution), industrial innovation in energy, automation and manufacturing (Industrial Innovation), increased use of shared technology, infrastructure and services (Next Generation Internet), and technologies that make financial services more efficient (Fintech Innovation). In total, the fund holds 59 securities in its basket and charges 75 bps in annual fees. The product has AUM of $21 billion and trades in volume of $12 million shares a day on average.

Simplify Volt Cloud and Cybersecurity Disruption ETF (VCLO - Free Report) – Down 6%

This product is actively managed and is designed to concentrate on those few disruptive companies poised to dominate the new era of the cloud and then enhance the concentrated exposure with options. It holds 23 securities in its basket and is a high-cost choice, charging 1.02% in annual fees. It has accumulated $1.5 million in its assets since its inception in late December and trades in an average daily volume of 5,000 shares

ARK Next Generation Internet ETF (ARKW - Free Report) – Down 5.9%

This is an actively managed fund seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvements, and advancements in scientific research. The fund holds 54 securities in its basket and charges 79 bps in annual fees. The product has gathered $5.9 billion in its asset base and trades in volume of 1.5 million shares.