The IT sector is unquestionably a massive investment potential for both corporations and individuals. It is the market’s largest single segment, outdoing all others, including the industrial and financial sectors. Since technology companies are associated with inventions and innovations, investors anticipate significant R&D investments by tech firms and also a consistent stream of growth fueled by the invention of new products, features, and services.
Why Invest in Tech Stocks?
Technology-related goods and services are dispersed across the entire economy. Every area of the developing economy is directly impacted by and reliant on technological advancements to increase the productivity, quality, and profitability of products and services.
With the fast pace of technological change, winners and losers do not necessarily stay in their positions for long. Microsoft dominated the software business but has lost ground in the mobile sector. Apple, too, was written off in the 1990s but revived with groundbreaking smartphone innovations. The industry’s dynamism and rapid development make it a must-consider for any investment portfolio.
Even though technology stocks are riskier than conventional stocks, they provide significantly higher returns. This has always been the norm for many years. During the unprecedented bull market of the twenty-first century, tech stocks have regularly outperformed the S&P 500. In fact, the S&P 500’s top five stocks are all tech. These are Google, Amazon, Apple, Facebook, and Microsoft.
Types of tech stocks for investment
The technology sector is divided into many sub-sectors, each with its own unique value. The key ones are:
This category includes commercial and enterprise software, as well as consumer software and apps. For example, Microsoft, Adobe, Salesforce, and VMware. All showed increases of about 50% or more from 2019 to 2020.
Telecom firms such as telephone and broadband networks are included in telecom. Among the most notable are AT&T, China Mobile, Verizon, Deutsche Telekom, and NTT. Some of these, however, saw a decline in 2019 and 2020.
Stocks of firms that make semiconductors, processors, and other internal hardware for computers. These are the examples: Intel, Taiwan Semiconductor Manufacturing, Qualcomm, Texas Instruments, Broadcom, Micron Technology, and others. There was a surge of over 60% for Taiwan Semiconductor Manufacturing Co. and Qualcomm, while Broadcom and Texas Instruments rose over 20%.
This subsector includes companies that make computers, consumer electronics, smart devices, and other digital gear (e.g., printers, copiers, routers). Apple, Samsung, Sony, Dell, HP, Panasonic, and Lenovo are among the companies that saw significant growth in 2019–20.
What to watch as an Investors
The fact is that technology stocks often fetch higher premiums than any other market segment. It reflects successful technological firms’ above-average productivity increases. In practice, even failed companies can hold their value until the market abandons their growth prospects.
Due diligence and stock market research pay off in every investing instrument. It pays to know a company’s products (including their pros and downsides) and those of its competitors. Clearly, the fine print is crucial here.
Some investors have done well by tracking performance, investing in category-leading firms and deftly shifting between stocks regardless of value. On the other hand, investors who are not as versatile as they supposed to or misjudge the market, end up with very costly stocks that lack a value basis.
The Bottom Line
Big tech stocks may face volatility and troughs, but their long-term gains may outweigh any short-term declines. Investors wishing to diversify their portfolios should carefully consider including them in their investment portfolio. There is no other type of stock that can equal their returns. Given the increasing prevalence of technology, a better compromise could be to simply devote time to diligent stock market research and self-education in order to invest where the values make sense.