How to Interpret the Sector

Elliott
Why Technology Stocks

Technology stocks are tech companies that are listed on the stock market. There are always plenty of opportunities to profit from investing in this sector. We are going to outline what factors influence this sector, what risks are involved and how to look for the types companies that offer the best return or lowest risk.

Simply put, a market sector is used to describe a part of the economy. It encompasses similar companies under one banner. For instance a hospital and an aged care home would be considered under the “Health Care” sector.

 The Technology sector refers to all companies that sell technology related goods and services  The Technology index is  under the ticker SPLRCT which is the measurement tool commonly used to track the performance of the Technology sector.

We believe there is currently a huge gap between professional and everyday investors. Where professional investors have access to insights and information that normal investors do not.  We’re here to bridge that gap by providing analysis that is accessible and easy to understand.

Sector Rank
In United States

See Full Ranking Here 

20
Current Rank
12
Total Sectors

Percentage Change Since last month

SPLRCT Index Increased By
27.92%

Risks you should watch out for!

Innovation – Not only is innovation one of techs greatest opportunities it is also one of the greatest risks. Remember back to the likes of Nokia and Kodak. Sure great companies at their time but both had the same failure. A failure to innovate, Nokia failed to adapt to the changing mobile market in time. Apple and Samsung gladly took over. Kodak failed to innovate in its market as a result from 2013 to 2020 it dropped 93%. IN 6 YEARS. This is how dangerous a failure in this area can be 

Low barrier of Entry– Simply put this means that it’s relatively easy for someone to create a competing product in this space. It means that a kid can create software in their bedroom and have it available to the world instantly. This is great for the sector but horrible for individual business that want the least amount of competition as possible. We see examples of this with Bill Gate’s Microsoft, Mark Zuckerberg’s Facebook where people can create what they like when they like. These innovations threaten companies market share

Regulatory Changes –  A common problem across many industries but a huge one within the tech space. Legislation and innovation do not happen at the same time. Legislation often takes years take catch up to changes in consumer or business behaviors. Countries like China and Russia have already banned crypto and more countries are adding tighter regulation. This happens much later than the innovation and impact those companies tremendously. We can see greater restriction and more legislation being passed around the world often and a lot of the time this can hurt business

Data Privacy –  With many companies in this space controlling vast amounts of data on you and every other customer that uses its service. It becomes very difficult to saftey store and access this data and the companies that rely on it are spending gross amounts to try and keep this information secure. However we see it time and time again where these companies fail to do it safety and we see information leaks become more and more prevelant. This is dangerous to consumer trust and will ultimately hurt revenues. See Facebook’s Cambridge Analytica scandal. This is really just the tip of the iceberg. 

Economic Conditions – In the tech sector we often see huge increases and decreases in a particular stock sometimes in the same day, its not uncommon for stocks to double their price in a week. As a result they are also extremely susceptible to poor market conditions where huge selloffs can occur as a result of market panic. It’s best to separate yourself from market speculation wherever possible.

Opportunities to look for!

Innovation – Just as innovation was a negative to the tech sector it is only its strongest opportunity. Truly a paragon of the double-edged sword. The speed of innovation within the tech sector can’t be compared to any other sector just be looking at the number of startups that exist in this space is a true testament to that. And with all these new innovations continually being added to the tech sector it also adds a tremendous amount of value to it.

Market Digitalization – That fish and chips shops down the road now has Facebook. Their advertising their services through Google Adsense, Protecting their computers using a cybersecurity company. Managing their data through a cloud data-warehouse like aws and paying for an internet connection every month. I’ve just listed 5 services that a single shop uses to interatct with the internet and there’s more. Everyone is using technology and their using a lot off it. The number of services continues to grow. 10 years ago that same restaurant didn’t even need an internet connection. Now they need much than that and will continue to need different services in the future.

Global Reach – 4.57 billion, that’s the number of people that are online around the world. Almost 60% of the global population and that number continues to grow every single day. And the tech sector is at the forefront of this development. Their the ones which provide services to all these people and benefit most from the digital economy. 

High Growth Rate – Tech sector stock are very susceptible to changes. We see this every other week with the likes of Tesla. Where when they announce something even remotely good the price skyrockets, often unreasonably high. This is due to 2 reasons. 1 the announcement is something that investors think will benefit the long term revenue of the company and 2 there is so much market speculation on tech stocks that when a stock rises its rise is amplified because every investor wants to buy a piece of it. On top of this investment firms know that market speculation will drive a huge chunk of the price rise and therefore create algorithms that take s notice of it (without you even knowing) 

Digital Protection –  Looking out for strong companies that deal with digital protection against malicious software and data breaches can be a great opportunity. These companies can be considered a staple in the industry where every  company needs them in order to feel safe and secure. What’s more as regulation in the tech sector continues to increase the demand for these types of companies is more apparent each day.

Investing in Different Types of Tech

Elliott (1)

Internet Services

ABOUT – The companies that provide us with internet access, often very localized and only a handful of companies service a given area. However this is rapidly changing as 4 and 5g technology continues to be rolled out over the globe. 25 years ago there were 16 million people using the internet. Today that number sits higher than 4 billion with an estimated 60% of the world using internet services. This is an astronomical number and any product or business that services the internet stands to profit. However it’s worth noting that this space as a result is getting increasingly competitive.

Level of Risk
Medium
Profit Potential
Low

Fintech

ABOUT – Fintech Companies deal in the financial space in a new way differentiated from the old finance sector. These companies usually provides services for very low costs that are available in a large area. Unlike traditional banks or institutions that are often extremely localized. Companies in this space include Square, Robinhood and Etoro who all pride themselves on delivery fast, affordable and reiable products.  

Level of Risk
Medium
Profit Potential
Medium

Software as a Service

ABOUT – These are companies that usually provide an ongoing service to their customers. Such as Spotify or Snowflake who bill their customers on a recurring bases. However Spotify bills month per month companies such as Snowflake bill based on demand and how much the customer consumes. This is a great long-term business model as it provides flexibility to the customer as well as repeat customers for the business. What’s more these companies tend to have systems to keep customers on board for as long as possible without you even noticing. It would inconvenience you too much to create those 50 playlists again on another service and it would inconvenience a customer of Snowflake too much to rebuild their data architecture for another platform.

Level of Risk
Low
Profit Potential
Low

E-Commerce

ABOUT – We’ve all encountered these types of companies their big and they sell us pretty much everything we want, the list is close to endless. Companies like Amazon, Ebay and JD.com are kings in this space. Generally speaking this sub-section of the tech industry has grown steadily over the last few years and some studies have suggested that revenue could reach $4.9 trillion 2021, up from $1.3 trillion in 2013. On top of this as the developed world increasingly becomes online we will potentially start to see some new platforms in different regions around the world.

Level of Risk
Medium
Profit Potential
Medium

Cybersecutiy

ABOUT – These companies protect the digital assets of their customers. Companies such as Crowdstrike even use artificial intelligence to detect and nullify malicious software before any other company would have even known it existed. Companies in this space also protect our data from people with bad intentions who often try to steal information about us to sell to interested parties. The cybersecurity industry is the gatekeeper and protector of the tech sector and continues to grow as the tech sector expands. 

Level of Risk
Low
Profit Potential
Low

Artificial Intelligence

ABOUT – Artificial intelligence is one of the greatest innovations of recent history and the industry is still very much at its infancy.  As of 2019 the industry was approximately valued at $39.9 billion this number is slated to increase to $733.6 billion in 2027. Those are massive growth projects which is so rare for any industry to have. Furthermore the uses of this technology stretch amongst so many different other industries such as automotive, healthcare and even finance.

Level of Risk
Very High
Profit Potential
High

Alternatives to investing in specific technolgy stocks

Technology ETF’s are a great way to get some exposure to the rapidly growing mining sector. An ETF or exchange-traded fund is a fund that invests in a variety of technology companies. You can invest in an EFT and not have to worry about individually picking and selecting technology stocks.  Below is an example of a mining EFT if you’re not sure where to look.