Investment in Technology Stocks - A Beginner's Guide
Technology stocks are the stocks of those companies that are into technology related services and products. Some of the examples of technology stocks include those belonging to software, hardware, biotechnology, semiconductors and related businesses. These companies are engaged in the research and development as well as the distribution of the goods and services related to technology.
These product and services are available at a personal level as well as for businesses. On the personal front, goods and services are available in the form of consumer goods like mobile phones, personal computers, electronic gadgets like home appliances, television, IoT devices etc. Services like video calling services, remote monitoring and presentation services etc are very crucial.
On the business front, product and services are available in the form of enterprise software for handing various operational jobs within the business, like HR related software for handling payroll and employee leave management services, software for logistics companies for tracking of parcels, shipments, etc. For each sector, the technology companies provide various customized software packages.
Features of technology stocks
- Technology stocks generally have a track record of providing better returns as compared to stocks belonging to other sectors.
- With the advancement of technology, the research & development and marketing strategies employed by these tech companies to reach their end-users stimulate the demand for upcoming technologies and help these companies to grow. As the companies expand, it would also influence their share prices.
- Technology stocks act as stabilizer to portfolio returns. In other words, if in a portfolio there are many stocks belonging to different sectors and few of them are not performing well, then the overall portfolio return can be beefed up to a certain extent by allocating some portion of portfolio value to growing tech companies as they have potential to generate a better return than others.
- Technology companies have people as their assets who play all-important role in developing new technologies. These companies require more capital to make the payment of wages and salaries and retain key personnel overlooking the development process. Hence, the amount of compensation-related expense is higher in technology companies compared to that in others.
- Technology stocks are likely to sport a higher PE ratio. P/E is the result of diving the market value of the share with the projected earnings per share. A higher P/E ratio will not necessarily lead to the conclusion that the stock is overvalued. If all companies developing a new technology trade at higher P/Es, then it means that the market is expecting these companies to be the primary beneficiaries of that technology as and when it is developed. On the other hand, a group of stocks having a lower than average P/E of the sector might be associated with a technology whose demand is on the wane.
Areas to invest in Technology for better returns
- Artificial Intelligence (AI): AI is the latest technology in the IT sector and is in the nascent stage in Australia. As compared to many other developed nations, Australia still is behind in terms of innovation and incorporation of AI. The Australian government is working for the improvement and development of the AI sector, machine learning and other emerging technologies. For this, the government has provided for more than A$29.9 million over next four years in the 2018-19 federal budget.
- Blockchain: In the last 10 years, blockchain technology’s popularity and usage have gone up. This technology has started disrupting the present Australian market and markets across the globe. People became aware of this technology because of Bitcoin. Blockchain technology is used widely for business process as it makes the process more transparent, improves security, efficiency and traceability. It also helps in reducing business costs.
- IoT: IoT or Internet of Things is another emerging technology which shapes the life of an individual as well as disrupts traditional businesses. In Australia, the Australian home Internet of Things market during 2017-2018 has grown considerably and would come more under the limelight with the advent of 5G technology on a massive scale.
- Cloud computing is amongst the fastest growing industries in Australia. Aussies are keen adopters of cloud computing. For many companies around the world, Australia is an excellent destination for cloud computing. Recently, an Indian company named Zoho expanded in Australia.
- Streaming media services: In Australia, Stan is giving a tough competition to Amazon services. Streaming media services have now become the backbone in Australian homes.
- Mobile Technology: Mobile Technology has a brighter future in Australia, and there is huge scope with the arrival of 5G technology. Mobiles would be designed to support 5G technology and would also result in the creation of new mobile applications.
- Cyber Security: Every nation is now more concerned about cyber security which is an ever-growing segment in the IT industry. The Australian government has also provided the guidelines for cyber security framework which could be applied by companies to minimise the risk of cyber threats. The government is also making an effort towards improving cyber security so that it can strengthen the cyber security network in Australia. It is a continuously improving process and has a huge potential in the upcoming period.
A few Technology Stocks in Australia and their performance
In Australia, there are various companies which deal with the technologies mentioned above. Some of the companies dealing in one of these technologies are as follows.
BrainChip Holdings Ltd (ASX: BRN)
BrainChip Holdings Ltd (ASX: BRN) is a company which develops solutions for neuromorphic computing. The business works on Artificial Intelligence and is centred on the biology of the human neurons - spiking neural networks. This technology is capable of being assimilated independently and just like the human brain; it can evolve as well as associate relevant information.
In the last six months, the stock of BRN has given a return of 35.91%. The stock on 15 October 2019 (AEST 01:02 PM) was trading at a price of $0.057, down 1.724% when compared to its previous closing price. BRN has a market cap of $75.18 million and ~ 1.3 billion outstanding shares.
Security Matters Limited (ASX: SMX)
Security Matters Limited (ASX: SMX) uses technology which consists of chemical-based hidden "barcode" system which is used for marking an object at any state of matter (solid, liquid or gas). This helps in identifying goods, tracking supply chain as well as conduct quality check with confidence. This barcode is scanned using unique “reader” to identify the codes, and through blockchain technology, the data is stored and protected.
The stock of SMX has given a YTD return of 3.45%. The stock on 15 October 2019 (AEST 01:04 PM) was trading at a price of $0.280, down 6.667% from its previous closing price. SMX has a market cap of $32.97 million and ~ 109.91 million outstanding shares.
Rhipe Limited (ASX: RHP)
Rhipe Limited (ASX: RHP) is the leading cloud channel company in the APAC region which provides its technology partners with complete end-to-end cloud solutions so that they are able to grow and thrive in the Cloud economy.
The stock of RHP has given a YTD return of 112.15%. The stock on 15 October 2019 (AEST 01:05 PM) was trading at a price of $2.720, up 3.817% from its previous closing price. RHP has a market cap of $367.1 million and ~ 140.12 million outstanding shares.
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