By Suyeba Aslam
Your commercial awareness dose.
Tech stocks, also known as technology stocks, essentially refer to all kinds of stock within the field of technology. This may vary from computational software to websites, artificial intelligence (AI), blockchains, conductor producers, etc. As the concept of technology is constantly evolving, it has most certainly caught the interest of investors who are interested in its development.
Written in an article by Investingnews.com it is apparent that the top leading tech stock companies are: Apple, Microsoft, Amazon, Alphabet, Facebook, Tencent Holdings, Taiwan Semiconductor Manufacturing, Samsung, NVIDIA and Adobe. All of which a majority of the top leading companies are held within NASDAQ’s index.
The year of 2020 has been very intense for the world of technology as shares within companies such as Tesla had lost up to 21 per cent in shares whilst Amazon’s Founder Jeff Bezos’ net worth had plummeted by 7.9 billion dollars. There were also the ongoing consequences of the coronavirus pandemic, which only increased the value of the tech stock market.
As many companies were left out of business due to the peak of the pandemic, it had caused a “much-hyped share sale”-said Dominic Rushe, who wrote for The Guardian in September 2020. But the high-rising sale has spiralled up much fear within the economic world due to the speculation that the tech bubble may burst again, similarly to the dotcom bubble burst in 2000.
The concept dotcom bubble, also known as the internet bubble, had evolved from the US in the late 1990s when technology stock equity valuations had rapidly risen as a result of huge investments being put into internet-based companies.
With NASDAQ owning the highest number of technology equities, the value of their index had also significantly increased, rising from just under 1,000 up to more than 5,000 between the years 1995 and 2000. The bubble had grown beyond its capacity and burst, leading NASDAQ’s index to collapse to 1,1390 on March 10, 2000. According to Investopedia.com, towards the end of 2001, it was official that the dotcom stocks had liquidated.
Blue-chip technology stocks such as Cisco, Intel and Oracle had suffered in a huge loss of value, soaring up to 80 per cent. This was as a result of companies selling large numbers of stocks, which later on sparked a lot of panic selling among investors. It eventually took more than 15 years for NASDAQ to regain their technological peak, which was later on achieved in April 2015.
Before learning how to invest in tech stocks, you need to understand that risks that come alongside it. For example, unpredictability and disruption, switching costs and valuation. On the other hand, for you to gain the best possible advantages within the investing game, there are a few things you need to consider.
Depending on the type of company that you are looking to invest in your competitive advantages or moats will vary. However, in the world of tech stocks you will need to consider four different aspects:
- · High Switching Costs: A prime example in this scenario would be once a customer signs a contract for a product or service; it is very complicated for them to leave. This is due to the high cancellation fees and a standard two-year contract, in which this method subliminally locks in customers in effect for earning more profit.
- · Network Effects: This is usually put into effect depending on the popularity, which is evident with aspects such as social media websites. Thus, proving the more popular a product or service is, the more valuable it shall become.
- · Low-Cost Production: You must consider whether a product can be made of equal value at a lower cost. However, this does not only involve the production of good physically but virtual good such as data.
- · Intangible Assets: The consideration of aspects such as brand value, patents and regulatory protections.
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