Investing in technology can be daunting, especially for those who don’t know much about technology. We’ve put together a guide running through the different sectors, the tech giants, and technology investing basics.
Technology Investing 101
The Technology Industry
The technology sector relates to the research, development, and distribution of information tech-based products and services. Businesses can vary from the manufacturing of computers, software, electronics, and any services related to IT. The term ‘technology sector’ is often abbreviated to the tech sector and is used interchangeably with the term ‘technology industry.’
Because the tech sector includes such a varied set of businesses, experts cannot agree on sectors and subsectors, and there is no universal agreement. However, the largest industries include software, semiconductors, hardware, and networking, and the internet.
Software e.g., Microsoft
Software providers provide products in one of four categories: system services, open-source, programming services, and software as a service, known as SaaS.
Semiconductors e.g., Intel
Formed around 1960, semiconductor companies are engaged in the design and fabrication of semiconductors.
Hardware e.g., Cisco
Producers of physical technology, like computers, modems, and servers.
Internet e.g., Alphabet (Google)
Internet information providers offer websites that largely reply on advertising to produce revenue.
Telecommunications e.g., AT&T
This industry transmits data in words, voice, audio, or video worldwide, and the three main subcategories are – telecom equipment, telecom services, and wireless communication.
The World’s Tech Giants
The world’s largest public tech companies, according to the Forbes Global 2000 List 2020, are as follows:
Apple – USA (ranked #9)
Revenue: $268.0 billion
Net Income: $57.2 billion
Market Value: $320 billion
AT&T – USA (ranked #11)
Revenue: $179.2 billion
Net Income: $14.4 billion
Market Value: $218.6 billion
Alphabet (Google) – USA
Apple – USA (ranked #13)
Revenue: $166 billion
Net Income: $34.5 billion
Market Value: $273 billion
Microsoft – USA (ranked #13)
Revenue: $138.6 billion
Net Income: $46.3 billion
Market Value: $285.4 billion
Samsung Electronics – South Korea (ranked #16)
Revenue: $197.6 billion
Net Income: $18.4 billion
Market Value: $278.7 billion
Amazon – USA (ranked #22)
Revenue: $296.3 billion
Net Income: $10.6 billion
Market Value: $1,233 billion
China Mobile – China (ranked #28)
Revenue: $108.1 billion
Net Income: $15.5 billion
Market Value: $164.9 billion
Alibaba – China (ranked #31)
Revenue: $70.6 billion
Net Income: $24.7 billion
Market Value: $545.4 billion
The most prominent and best performing American stock tech companies are referred to by the acronym FAANG:
- Facebook (FB)
- Amazon (AMZN)
- Apple (AAPLL)
- Netflix (NFLX)
- Alphabet (GOOG) – formerly known as Google
The term “FAANG” was coined by Jim Cramer, host of CNBC’s Mad Money, in 2013. They have a combined market capitalization of more than $4.1 trillion (as of January 2020). Some experts think that the FAANG stocks are amidst a bubble, but others believe their expansion is supported by their incredible economic and operational performance evidenced in recent years.
The best tech stocks to invest in, generally speaking, reflect the best-performing companies. Driven by technological innovation, they accelerate at a fast pace.
Factors to Consider Before Investing
Deciding if a tech company is worth your investment means to look at specific criteria.
It goes without saying, always thoroughly research the company you intend to invest in. Look at their business plan and track record as well as growth plans for the future.
Understand the financials or the ins and outs of a company before investing. For example, how much debt they have, current profits, and the share price in relation to being overvalued or undervalued. The P/E ratio shows the dollar amount an investor can anticipate investing in a business in order to get one dollar of that company’s earnings.
Work out the risk involved in investing, for example, by determining a company’s beta, a measure of instability. This is easier to calculate than it sounds, and there are plenty of online tools to help you.
Does the stock have a high enough dividend to be worth the investment? Use news websites and never expect a dividend from a start-up.
AI, Artificial Intelligence, technology is on the rise across all industries. Many companies are utilizing AI tech, and naturally, there’s been a spike in interest around AI investing. For example, in 2019, McDonald’s purchased the start-up AI speech company Apprente to provide their customers with a better drive-thru experience.
There are many subsets of AI tech, including machine learning, that have advanced dramatically over the last few decades. AI has become integral to various industries and companies and is, therefore, desirable to investors.
The IDC (International Data Corporation) Worldwide Semi-annual AI Tracker shows global revenue figures exceeding $300 billion in 2024.
Telehealth was already huge before the global coronavirus pandemic, but the seismic shift in healthcare tech means companies like Teledoc (TDOC) have seen exponential growth.
Getting started in technology investing can be the most challenging part, and it’s a misnomer that you need a lot of money to start investing. Many fintech start-ups are encouraging small or micro-investments. This so-called spare change investing is the idea of putting away small amounts of money that don’t require any significant lifestyle change. Micro-investing apps and spare-change apps make this even easier, where you can start with a minimum of $5.
Despite the extreme volatility of 2020, the technology industry has become more dominant and the year’s standout sector. There are many opportunities to invest in tech; however, make sure you protect your hard-earned cash and consider an approach when researching which investments to make.
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Have you made money in technology investing? What are your predicted income earners for the rest or 2020 and 2021? Let us know in the comments section below.