Investors should consider having some holdings in technology-related shares, because the potential within is both revolutionary and evolutionary everywhere you look.
Probably the broadest sector on major markets today, it encapsulates everything from iPhones to Google to Netflix to cars that drive themselves. While this sounds like a universe of opportunity, the central theme is a focus on is the digitization of consumer information and thegrowth of electronic commerce, as well as processing of “big data”.
(Image via Universal mCloud Corp.)
Breakdown:
The technology sector essentially includes stocks that involve the research, creation, and distribution of goods or services that relate to simple and complex technology. This is every household item from computers, software, websites, televisions, tablets and smartphones. It is both physical (hardware) or digitally immaterial (software and its code).
Some other popular trends that have been associated with this space include: artificial intelligence (AI), virtual reality (VR), augmented reality (AR), blockchain, cryptocurrency, software-as-a-service (SaaS), the Internet of Things (IoT), streaming media, self-driving vehicles and a lot more.
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Sector segmentation:
Smartphones: The iPhone is chief among them and there are many other companies making handset phones that can run apps, programs and can operate much like a computer.
Computers / software: This includes desktops, laptops and tablets are the hardware that runs the software. There are also components and companies focused on those, such as the chips and processors that power the computers. Some companies just focus on making components for computers like chips, processors and other add-ons.
The internet: The global interconnected computer network you’re reading this on right now.
The internet of things (IoT): An emerging sector of the market that is a network of devices that connect each other and also the cloud. It can be used around the home for appliances or among medical equipment in a hospital.
The cloud: A massive computer storage system that allows access to information and services from anywhere.
Artificial intelligence (AI): Computers who basically “think” as if they had a human brain to perform next-level tasks and beyond. This also includes “deep learning” where computer models are built to mimic the ability to learn. The most well known AI is the Alexa smart home assistant.
Virtual and augmented reality: A simulated world that can either be similar to, or completely different from the reality, but is experienced visually (such as the Oculus Rift headset). Augmented reality places digital elements within the real world, often seen through a device like a smartphone (the Pokémon Go video game).
Blockchain and cryptocurrencies: A digital, distributed and decentralized ledger that can adapt with new information. Like a spreadsheet that thinks. It is most often associated with cryptocurrencies such as Bitcoin, because it can record transactions without needing a financial intermediary.
Software-as-a-service (SaaS): A licensing and delivery model where software is licensed on a subscription basis to companies and is centrally hosted by a provider.
Self-driving vehicles: A unison between major auto manufactures and tech companies have been attempting to bring vehicles that drive themselves onto the market, specifically the likes of Google and Tesla Motor’s ambitions. Although not fully adopted yet, they could be seeing limited use in the near future.
Streaming media: Most popular among them, for now, is Netflix, although a slew of others have recently carved out major portions of this market, such as Amazon and Disney. Any company that creates its own infrastructure to deliver the video content from its platform to audiences digitally counts in this regard.
Devices: Peripherals to computer hardware which are made by the companies that operate the software, such as drones, GoPro cameras and Fitbit health monitors.
Cybersecurity: All of this information shares one key trait - it is vulnerable to hacking and attacks. Keeping information secure is a major industry, from credit card numbers to health insurance data.
FAANG stocks:
The most popular and best-performing tech stocks are often referred to as a group known as “FAANG”, which is an acronym for their respective names: Facebook, Apple, Amazon, Netflix and Google (Alphabet Inc.). There is also a Canadian equivalent called DOCKS (Descartes Systems, Open Text, Constellation Software, Kinaxis, Shopify).
Tech specs:
Technology is probably the most-used element of our lives, from work to home, people are touching it and affected by it 24/7. There is a wide swath of potential applications for each new device or program and some are completely divergent while others can unite those very same divergent elements. While investors may dream of chasing “the next iPhone” or “the next Google”, those two examples perfectly describe how differently in unison tech can be. When looking broadly at investing into this market, a trader should consider starting with an exchange-traded fund (ETF) to get a more broad benefit.
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