The tech industry happens to be an inescapably huge investment-opportunity for both Wall Street and corporate America.
It’s the largest single sector of the market share, eclipsing all others-(including the industrials sector and financial sector).
More than anything, tech corporations are associated with invention and innovation. Investors expect considerable spending on Research and Development by technology corporations, but also a steady-stream of progress & innovative goods and services.
These goods and services are disseminated throughout a country economy hence there’s no sector of any economy that tech doesn’t touch and that doesn’t rely upon the tech sector to improve productivity, quality and/or profitability.
Tech is notable for its unbridled competition & rapid obsolescence cycles. This rapid phases of obsolescence simply means that winners & losers in tech don’t necessary maintain those spots or positions for long. Moreover, that dynamism & impressive growth make tech must-consider sector for_virtually every investor.
Breaking it down
Within the unwieldy and huge world of technology, it’s possible to carefully look at 4 key `mega sectors:’ semiconductor, networking, hardware and software. Whilst not every tech organization fits into-one-of these 4 mega sectors, the-majority-do, and it’s a useful approach to discuss about the industry as a whole.
#What investors should watch
One of the basic truths of investing in equities is that technology stocks sports higher premiums more frequently than almost_other market segment. In theory, this high-level of valuation is the recognition of the above average growth rates that any successful tech organization post. In practice, although, even unsuccessful organizations can carry vigorous valuations right-up until the very point where the tech market gives-up on those growth forecasts.
Technology has an above-average number of public organizations that don’t yet produce cash flow or profits. The lack of a track-record forces investors to employ more guesswork when establishing discounted cashflow valuation models. Investors can also have some encouragement that diligence and research pay well in the technology sector. Understanding a business’s products-(especially their pros and cons) & those of its competitors can give an investable edge. Noticeably, this is an industry where the available details matter.
There are investors who’ve done well by simply following the investing and growth in category leaders & nimbly moving from organization to organization irrespective of valuation models. On the other hand-investors who aren’t so nimble-(as they misjudge or believe the competition), find themselves holding expensive stock with no-underpinning-of value to support-them.
#The bottom line
Many investors stay clear of the entire space-(Warren Buffet is a well known example) & regard it as irrational and impenetrable. Given the pervasiveness and dynamism of tech, however this happens to be a significantly self limiting view that cuts off_one of the most powerful and dynamic engines to modern and emerging economies. Finally a better compromise might be to invest a lot of time in self-education and research and utilize those important insights to invest where the valuation and theses make sense.