Investing in the Technology Industry
The tech sector’s hallmark is innovation.
Learn more about investing ETFs and stocks in the technology sector, which has experienced explosive growth over the past few decades.
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Things you’ll learn in this guide:
- Why the tech sector’s hallmark is innovation
- Why so-called “FAANG” stocks are so important in the tech world
- How overseas tech companies, particularly in China, are increasingly becoming competitors
Learn more about investing in the tech industry.
The tech sector has changed how we interact in the world. It’s also a huge part of the economy. Learn how tech stocks can fit into a diversified portfolio.
Tech tock: What is the tech industry?
Technology has changed everything.
Most of us can remember a time when cell phones looked more like bricks than today’s iPhones. Or they recall when video games consisted almost entirely of jumping on turtles, rather than strategizing a plan to storm an enemy position with other players across the world.
We have seen the changes in nearly every aspect of our lives—from transportation to entertainment and health care. Entire subsets of the industry, like social media, didn’t even exist just a short time ago.
But the tech industry hasn’t only changed the way we interact with the world. It’s also served as a big prop to the U.S. economy, particularly in the wake of the Great Recession. While technology companies employ a relatively small number of American workers—an estimated 11.5 million, according to industry analysts—the sector has created an enormous amount of wealth.
In 2018, the industry’s ten largest firms could see sales of more than $1 trillion, according to reports.
Part of the reason that the industry is so profitable is that it’s widespread. The tech industry’s influence penetrates into just about every other sector, including the automotive industry, healthcare, defense, agriculture, construction, and more.
All told, companies operating in and around the tech industry account for more than 5% of U.S. GDP, according to analysts.
What are the key tech stocks and companies?
A handful of large tech firms lord over the others, as they do in many other industries. And most of them should be familiar to you, as we all interact with their products and services each and every day.
Among the biggest tech companies in the U.S. are Apple, Amazon, Microsoft, Facebook, and Alphabet, the parent company of Google, according to industry data. On-demand video streaming service Netflix is also near the top, and combined with the others make up the fabled “FAANG” stocks–which are some of the most popular and best-performing stocks in the sector.
“FAANG” stands for Facebook, Amazon, Apple, Netflix, and Google. While these are the largest and generally very popular tech companies, there are many others, including eBay, Salesforce, and Uber, to name just a few.
U.S. tech companies are increasingly facing competition from overseas. While many Americans may be familiar with Chinese companies such as Alibaba and Tencent, others, like tech-conglomerate Baidi and Xiaomi, which makes consumer electronics, have also grown in influence.
What’s happening in the tech industry?
Innovation, innovation, innovation
The tech sector’s hallmark is innovation, which is the primary reason that the industry has experienced explosive growth over the past few decades. Some examples include the influx of personal computers in the 1980s and 1990s, and later, the advent and subsequent evolution of cell phones and smartphones in the 2000s.
With phones and computers acting as ubiquitous platforms for work and everyday life, tech companies have created opportunities for other tech companies. Apple, for example, released the iPhone in 2007. The iPhone (and other smartphones) then launched an entire industry of “mobile apps,” which in turn led to the creation of products and services delivered via app. These services include things such as the car rideshare company Uber, and the home and apartment share site Airbnb.
Innovation continues in every corner of the tech sector, from evolving medical technology to new, virtual reality video games, which promise new immersive experiences letting customers interact with three-dimensional images
Like many other sectors, the tech industry’s biggest players are starting to throw their weight around by buying up competing and complementary businesses. They’re doing that to solidify market share, and to stamp out potential competitors before they can gain a foothold.
Facebook, for example, has made many high-profile acquisitions, including WhatsApp in 2014, and Instagram in 2012. Google, too, has been busy making deals over the years, purchasing companies such as YouTube in 2006, and Motorola Mobility in 2011.
The consolidation trend hasn’t abated, either. Recently, Microsoft bought code storehouse Github for $7.5 billion. In recent years, it’s also acquired networking site LinkedIn and communication service Skype, too.
Regulators, mount up
While the tech sector has become something of a behemoth over the past decade, it’s done so largely with few regulatory hurdles to hamper its growth. But that era of relatively little oversight appears to be coming to drawing to a close.
Recently, Facebook’s legal troubles have mounted as concerns about its lax privacy and security practices have entered the mainstream. Issues regarding both privacy and security aren’t new to the industry—Google and many other tech companies face similar issues—but Facebook’s unique role in the political sphere has led to additional attention from the government.
It’s possible U.S. lawmakers will pass legislation to regulate tech companies that use consumer data. In that regard, they may follow the lead of governments in Europe, some of which are already cracking down.
American lawmakers have, so far, been unwilling to exercise control over big tech firms. But the tide may be changing.
Investing in tech companies
Think the tech sector is worth investing in? You can add technology firms and related companies to your portfolio, and there are a few ways to do it.
Investors in the U.S. can buy shares of stock in companies working in and around the industry on a publicly-traded exchange, or buy shares of a fund—such as an exchange-traded fund, or ETF—that offers exposure to those companies.
Investing in the tech industry: single stocks
A single stock is just that, a share of ownership of a company. For example, investors can purchase shares of stock in companies like Alphabet, Apple, IBM, Netflix, and Microsoft.*
Investing in tech ETFs (exchange-traded funds):
Exchange-traded funds (ETFs) are a basket of investments bundled into a fund that’s traded on an exchange like the Nasdaq or NYSE.
When you invest in an ETF, you are effectively buying small fractions of the companies within that ETF. The fraction depends on the weights stocks held in that fund. That fund owns the stocks within it and generally tracks an index–or group of investments that represent part of an industry or investment theme.
Tech ETFs vs stocks
ETFs have become popular in recent years as they give investors the opportunity to invest in the performance of a group of stocks without having to buy every single stock in the fund or handpicking single stocks.
Not only can this save time and research, ETFs can offer diversification, which many consider being an essential investing strategy.
Investing in the tech industry on Stash
*Listed investments currently available on Stash but not necessarily representative of all investments.
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