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Highlights
- The COVID-19 pandemic has helped the technology sector build a stronger demand base over the past nearly two years.
- The surge in demand and operations has spurred an extensive growth for many tech players.
- This, in turn, has drawn the interest of many investors, who are now looking to add tech stocks to their portfolios.
The COVID-19 pandemic has helped the technology sector build a stronger demand base over the past nearly two years. With people being limited in their access to the world outside their homes and businesses having their shutters down, both groups had to depend largely on online services.
Even as the lockdown rules relax, peoples’ dependence on having their needs met from the comfort of their homes does not seem to going vanishing. Businesses, on the other hand, also don’t seem to be interested in doing away with having an online platform even as their physical stores open back up.
The surge in demand and operations has spurred an extensive growth for many tech players, both established firms and fresh startups, in Canada and abroad. This, in turn, has drawn the interest of many investors, who are now looking to add tech stocks to their portfolios.
But as any seasoned investor would know, no stock comes with zero risks. So, what would be the risks of parking your funds in tech stocks? What are the pointers Canadian investors should know before investing in this sector?
Let’s answer these queries you may have one by one.
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What exactly are technology stocks?
A stock belonging to a tech company, i.e., firms that deal with technology-related goods and/or services, would qualify as a tech stock.
Due to the field’s rapid advancement and growing demand, the tech sector comprises of leading universal players like Apple Inc (NASDAQ:AAPL) as well as fresh startups.
Also, with technology and the digital world reaching for new stars every day, the sector is almost always erupting with newer products and services. Currently, the Canadian markets hold tech stocks ranging from software solutions, e-commerce, cybersecurity, gadget makers, artificial intelligence, metaverse, and so on.
Also read: 2 Canadian metaverse stocks that rose over 200% in a year
This brings us to our next tech stock-related question.
What risks come with investing in tech stocks?
Tech stocks can be significantly profit-making, but that does not mean they also can’t incur loss. While the pandemic did not put a dent on the tech sector (as it did for others), the 2000 dot-com burst had done quite a damage.
So, let’s look through the risks that can come with investing in tech stocks:
- Technology jargon
Even when you understand the stock market techniques well, if you are not quite up to date with the happenings in the tech sector or with what exactly the tech firm you are interested in does, you may fail to gauge its and its stock’s future.
- The reality of going out of style
Tech companies can be like shooting stars: burn bright for a while and then vanish.
With the tech space evolving at such a fast rate, tech products are also becoming obsolete quickly. For instance, BlackBerry Inc (TSX: BB) smartphones, which were once a rage worldwide, has completely gone out of style now.
Therefore, if you invest in a tech company that gets replaced by a newer alternative, you can end up facing loss.
- Failing to make a mark
While there are new and bright tech products being developed regularly, not all of them can be destined to be a market winner. Hence, a tech player that fails to make a mark in the market or rake in sufficient revenue from its product can end up recording significant stock price decline.
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Bottomline
Like its peers, the tech sector has both pros and cons. But while there are risk factors, investment in tech stocks can generate notable returns over the long run as most players in this space are likely to see significant growth.
