Are Tech Stocks A Good Investment?

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Are Tech Stocks A Good Investment?

 Are Tech Stocks A Good Investment?
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The technology sector is one of the most happening places. It is vast and captures a lot of attention. This sector comprises different business segments, such as gadget makers, software developers, semiconductor manufacturers, wireless operators, internet video streaming, and cloud computing services. In addition, there are both big and small tech companies, and a profusion of startups that have a firm grip over the market.

Many software companies run on a software-as-a-service model, allowing customers to buy a subscription program over a one-time license. It helps in generating recurring revenue. 

The United States and many other major economies worldwide, such as China, Germany, the United Kingdom, Canada, South Korea, etc., have a large and sophisticated technology sector. Many hardware companies design and manufactures central processing and graphics processing units and a wide variety of chips for the other industry sectors.

The sector had the highest Return on Investment (ROI) in the last 12 months ended June 10, accounting for 30.65% of the total earnings. Thus, it is among the most profitable sectors. 

How Covid Impacted Tech Stocks?

The pandemic positively impacted the technology sector. It created a demand for technology across the globe. As a result, many technology companies stepped forward and focused on meeting up these challenges. Hence, 2020 has been a positive year for the tech industry. 

For instance, Microsoft Corp. has seen significant growth during the period as there was demand for software, devices, gaming, and cloud computing services as people spend more time at home. Figures show that personal computer sales have been robust. Revenues jumped almost 19% in its most recent quarter, and net income also increased by 44%.

Also Read: Is Apple listed on NYSE or NASDAQ?

Video-conferencing application Zoom Video’s popularity soared during the pandemic as its services allowed people to stay in touch with their close ones. At the same time, most companies chose Zoom over any other options. As a result, Zoom saw around 300 million daily users. It generated about US$2.6 billion in revenue in 2020, a 317% increase YoY.

Apple was also not far behind. It performed well last year. Its core iPhone business posted a 66% growth while Mac sales soared. It also launched the M1-powered MacBooks, featuring Apple's first self-built chip. Also, Intel's chips were in high demand in 2020 from its cloud customers. The need for a laptop was in high demand as the work from home trend continued. The famous brands, such as Dell, Lenovo, Asus, etc., witnessed a busy year.

E-commerce giants, such as Amazon.com (NASDAQ: AMZN), Walmart (NYSE: WMT), and Target (NYSE: TGT), also registered gains. For example, Amazon's sales volume increased by almost 44% in Q1 of 2021 to hit US$108.5 billion. In addition, Cisco's video-conferencing business was also booming, as its industrial Internet of Things (IoT) routers provided a strong internet linkage.

Online video-streaming services such as Netflix (NASDAQ: NFLX) and Amazon Prime registered rapid growth during the pandemic. This year also they anticipate solid growth. 

For the first quarter of 2021, Netflix generated total revenue of almost US$7.16 billion. It has increased from about US$5.8 billion for the corresponding quarter of 2020. Amazon has over 200 million Prime members and reached around US$10.4 billion in 2020.

Also Read: Can Companies List Both On NYSE And NASDAQ?

Another popular streaming service is Disney Co's (NYSE: DIS) Disney Plus. It is projected to make over US$10 billion in 2021, up from US$4.5 billion in 2020. Disney Plus’ subscribers reached over 100 million in March 2021. Additionally, the market size of the social media industry is expected to increase by almost 16.5% in 2021.

Social networking platforms, such as Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR), also saw increased ad sales. The percentage of services conducted online is expected to rise in 2021; thus, it presents a growth opportunity for the industry.

The cybersecurity market was at its best and reached approximately US$40 billion in 2020. It is expected to be worth US$42 billion this year. With an enormous volume of critical information passing from one computer to another, there has been an increased risk from viruses, malware, spyware, and other digital threats.

The popular antiviruses, such as NortonLifeLock (NASDAQ: NLOK), Splunk Technology (NASDAQ: SPLK), Cyberark (NASDAQ: CYBR), etc., can combat such threats. They also run in the background without affecting the machine's performance.

How To Analyze Tech Stocks

Stock prices and the price-to-earnings ratio is a valuable metric to determine the stability of the company. Besides, the net worth of the business and future growth rate will help understand the company's actual status. Further, tech growth also depends on innovations. The earnings per share is also an important metric as it shows the company's current profitability.

Over time, companies develop skills to become efficient in sales and marketing, which help drive revenue growth. Hence, a good tech stock can have a decent valuation and impressive growth prospects. Figuring out a genuine one among many stocks can be difficult, but with experience, one can quickly identify the best ones. 

Buyers can also consult stock market experts if they find it challenging to select one for themselves. They can also learn about investing in exchange-traded funds (ETFs) that focus on tech stocks. Some popular ones include Schwab US Small-Cap ETF, Vanguard Information Technology ETF, SPDR S&P 500 ETF Trust, etc. 

Also Read: What is cloud computing? A look at major future trends

Popular Investment Areas within the Tech Sector

There are a variety of segments for investments within the industry, such as:

Blockchain

It got a lot of publicity as the sole technology behind Bitcoin and all other virtual currencies. But it is more than an alternative payment method. It is a decentralized digital ledger that can record all transactions without a financial intermediary, typically seen in the cryptocurrency world.

The Internet of Things (IoT)

It refers to the billions of physical devices across the globe that are connected to the internet for sharing data. It combines different types of objects and enables them to communicate in real-time without any involvement of a human being. 

Cloud

The cloud server is virtual computer storage that allows information and services to be accessed by any remote devices from anywhere. Using this cloud server, the users and companies will not have to manage physical servers themselves or run any software applications on their respective machines.

Artificial Intelligence

The process refers to a computer or computer-controlled robot's ability to perform tasks that require human intelligence. As a result, it is creating a different world within the tech sector. One such example is Amazon's Alexa.

Smartphone

It is a mobile device capable of doing computing functions with the help of the internet. In addition, the smartphone helps in messaging, emailing, video calling, and social networking.

Internet

It refers to a network that connects different computer systems across the globe. Internet uses standard internet protocols for searching for any information.                                                                                                                                                    

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