What is technology investing? Here’s a breakdown of why the sector is so important for investors to follow.
The evolution of technology has certainly grabbed the interest of the general public and investors alike as tech innovation continues to move forward at a remarkable speed.
Overall, the sector has come a long way in the last two decades. In March 2000, the S&P 500’s technology index hit its peak of 988.49 points, rising by almost 500 points in the five years leading up to the dotcom bubble. Similarly, the NASDAQ reached an all-time high of 5,000 points during this milestone period.
Almost 20 years later, the technology market is dominated by major players, with companies like Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOG) — known as the FAANG stocks — creating vast monopolies.
With so much growth in the tech sector over the last two decades, tech developments are disrupting and shaping our cultural fabric at unprecedented speeds. Industries such as finance, real estate, ride hailing and healthcare are transforming with current technological advancements.
Here’s a breakdown of what technology investing is and why investors should pay attention.
This article continues below the Technology Investing Table of Contents.
Technology Investing Table of Contents
The articles listed below provide an overview of investing in technology from Technology Investing News.
Start Here – Investing in Technology
- 10 Top Technology Stocks by Market Cap
- 5 Top Technology Stocks on the TSX Venture 50
- How to Invest in a Technology ETF
- 5 Technology ETFs for Investor Consideration
- Blockchain Trends 2019: Gaining Gradual Momentum
- Blockchain Forecast 2020: Execs Talk Regulation and Decentralization
- Cleantech Trends 2019: Renewable Energy Costs Decline
- Cleantech Outlook 2020: Investment Inflows Look Bright
- Emerging Tech Trends 2019: NLP and VR Show Promise
- Emerging Tech Outlook 2020: Expect Advances in XAI, Mobile and VR
- Gaming Trends 2019: Esports Market Gains Traction
- Gaming Outlook 2020: Esports Teams Looking for Branding Profits
- What is Fintech?
- Why is Cybersecurity Important?
- Investing in Nanoscience
What is technology investing? The evolution of tech
The past decade or so has seen the evolution of countless tech-related industries. Take, for example, the music industry, which has gone from vinyl to cassettes to compact discs to streaming.
The most notable streaming company to emerge from this trend has been Spotify (NYSE:SPOT), which made its debut on the NYSE in 2018. The streaming platform is used by over 248 million monthly active users and 113 million subscribers, with its paid user base growing 31 percent year-over-year in 2019.
The cable industry has been shaken up too. Video-streaming company Netflix (NASDAQ:NFLX) has expanded to over 190 countries worldwide, and Amazon’s streaming services have exploded in recent years. Global Amazon Prime video-streaming subscribers are projected to reach 46.3 million in 2020.
Apple, with Apple TV Plus, and Disney (NYSE:DIS), with the platform Disney Plus, recently joined the ranks, launching video-streaming services with original content in late 2019. While Apple has withheld the number of users it has garnered since launching, Disney had signed up more than 10 million accounts as of mid-December 2019, and Disney Plus was that year’s top Google search term.
Another segment of tech that has witnessed growth over the last 10 years is messaging apps, which connect people in various countries around the world. WhatsApp, the world’s largest messaging app, boasts over 1.5 billion users and 300 million daily active users.
Speaking of connectivity and the future, the fourth industrial revolution has been tied to various segments of technology, from artificial intelligence (AI) to 3D printing. Countries like India are banking on “Industry 4.0” to aid in growth optimization and to improve supply chain efficiencies in enterprise.
Blockchain has of course also garnered interest in the tech sector; the global market size is set to grow from US$708 million in 2017 to US$60.7 billion in 2024. And according to the Stanford Center for Blockchain Research, blockchain has the potential to transform payment systems such as clearings and settlements, which are valued at over US$12.6 trillion in the US.
“This market segment previously has been held back in part by the outdated aspects of the mainframe computing technology. Blockchain is spurred by more modern ways to manage global transactions across national borders from IBM (NASDAQ:IBM), Microsoft (NASDAQ:MSFT) and Accenture (NYSE:ACN),” states Market Reports Center.
In addition, a report from Adobe (NASDAQ:ADBE) shows that mobile advancements and smartphones ranked at the forefront of innovation among participants polled. Statista notes that by 2021 the number of smartphones is projected to reach 3.8 billion worldwide.
The esports industry is also making significant headway, with Newzoo projecting 2019 revenue of US$152.1 billion worldwide. The burgeoning industry currently has over 454 million viewers worldwide, with games such as Dota 2, Fortnite, League of Legends and Counter Strike: Global Offensive awarding millions in esports prize money.
What is technology investing? Tech market growth
When looking at the technology market worldwide, its reach is almost untouchable. According to Apptio, globally the technology economy is the world’s third largest, surpassed only by the US and China.
A report from research firm Gartner pegs technology spending worldwide at US$3.88 trillion for 2019. That is up 3.2 percent from 2018, with spending on enterprise software, IT services and data center systems driving growth.
In response to massive global spending in this sector, the World Economic Forum (WEF) has proposed that countries invest in cybersecurity infrastructure in order to mitigate risks for digital and connected systems. For example, it states that an attack on the US grid system could cost US$1 trillion in damages.
“Fast-paced investment in IoT has brought the industry to an inflection point,” said Karime Kuri Tiscareno, project lead of Internet of Things (IoT) at the WEF. The WEF recommends that companies create broader security awareness, integrate proactive security systems and balance priorities as technology becomes continually embedded into their operations.
What is technology investing? Future tech outlook
The McKinsey Global Institute highlights that the IoT market could impact several industries, such as manufacturing, oil and gas, public sectors and healthcare. IoT data still largely remains unanalyzed, while the potential for IoT and decision making could add significant value to enterprises.
For example, the IoT industry is projected to reach 75.4 billion devices by 2025, Forbes recently reported, and its economic impact is projected to be vast. McKinsey anticipates that the IoT industry will have a US$11.1 trillion global impact.
The evolution of AI is also projected to influence and shape society. Yet despite exciting and profound advancements in natural language processing and prediction, its adoption still remains slow — in 2018, only 5 percent of businesses surveyed by the Economist had significantly integrated AI into their operations. In spite of this, the publication notes that 55 percent of supply chain executives said they planned to invest in AI in the 12 months following the survey.
All of these verticals are set to see massive returns in revenue, with AI hitting US$60 billion by 2025, up from US$1.37 billion in 2016.
What is technology investing? Ways to invest
Within the broad scope and magnitude of the tech industry, there are a number of ways investors can gain exposure to transformative disruptive technologies.
- iShares US Technology ETF (ARCA:IYW): This ETF began on November 12, 2001, and currently has 149 holdings. It covers all the big names in technology, including Microsoft, Apple, Facebook and Alphabet.
- Technology Select Sector SPDR (ARCA:XLK): This fund is one of the largest in the sector, with net assets of US$82.78 billion. There are 67 holdings in this fund, which was started on December 16, 1998. This fund also has all the major names in the industry, including Visa (NYSE:V), Mastercard (NYSE:MA), Cisco (NASDAQ:CSCO) and Intel (NASDAQ:INTC), along with Apple, Microsoft and Alphabet.
- iShares Global Tech ETF (ARCA:IXN): Unlike the iShares US Technology ETF, this iShares fund focuses on technology companies from around the world. Founded in 2001, it provides exposure to Japan, Korea, Taiwan and Germany, but also offers 79 percent exposure to US companies. Its international holdings include Samsung Electronics (KRX:005930) and Taiwan Semiconductor Manufacturing Company (TPE:2330).
More advanced investors or those willing to do their research may want to look at stocks in the tech space. Large-cap technology stocks are a good place to start, but it’s possible to get specific as well — artificial intelligence, robotics, esports, virtual reality and blockchain are just a few niche sectors those interested in tech may want to look into.
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This is an updated version of an article originally published by the Investing News Network in 2016.
Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.