The Introductory Guide to Technology Sector Stocks
Technology sector stocks belong to some of the most profitable companies in the stock market, but does that mean you should get them?
Published May 6, 2024.
Most beginner stock traders have heard of the S&P 500 index stocks, but did you know that this index is largely driven by stocks from the technology sector? Tech sector stocks represent some of the largest and most profitable companies today. In fact, as of 2024, the top five largest companies by market capitalization are all technology companies with a combined value of over $10 trillion, including Apple, Microsoft, and Amazon.
While technology is as important as ever, that doesn't mean stock prices are bulletproof. So, let's shed some light on what tech sector stocks entail, how they have performed historically, and which sub-industries they include so you can make a more informed decision.
Note: The information in this blog is purely educational and should NOT be considered advice.
What Are Technology Sector Stocks?
Technology sector stocks are shares in tech businesses focused on the development, production, and distribution of technology.
These stocks include a wide range of industries:
- Software solutions
- Hardware
- Electronics
- Digital services
The sector has shown solid performance over the years, thanks to rapid technological advancements. Some of the most notable trends include cloud computing, artificial intelligence (AI), and the expansion of e-commerce.
Market sentiment towards tech stocks is generally positive. The technology sector landscape remains one of the biggest market growth drivers. Still, even tech stock prices can be susceptible to regulatory changes, economic cycles, and company news.
Sub-Industries of Tech Stocks
Software Development
Software development involves creating, designing, deploying, and supporting software. As for trends, cloud-based solutions and software as a service (SaaS) models currently dominate the market.
Examples include:
- Microsoft (MSFT)
- Adobe (ADBE)
- Salesforce (CRM)
Hardware Manufacturing
Hardware manufacturing focuses on producing physical technology products, from computers to smartphones and other devices. The most popular current trends are the modernization of devices and AI integrations.
Examples include:
- Apple (AAPL)
- Samsung (SSNLF)
- Intel (INTC)
Telecommunications
Telecommunications encompasses companies that provide communication services through the Internet, phone, or other electronic means. The rollout of 5G technology is relatively recent but still very important.
Examples include:
- Verizon (VZ)
- AT&T (T)
- T-Mobile (TMUS)
Biotechnology
The realm of biotechnology combines technology and biology to develop healthcare, agricultural, and industrial products. Of course, some of these overlap with healthcare sector stocks due to their interconnected nature.
CRISPR technology (used for gene modification and alteration) and personalized medical solutions are among the most innovative trends in biotechnology today.
Examples include:
- Amgen (AMGN)
- Moderna (MRNA)
- Biogen (BIIB)
Cloud Computing Services
Cloud computing services offer computing power and storage solutions over the Internet so businesses can operate more efficiently without unnecessary hardware. The current trend steers toward multi-cloud and hybrid-cloud strategies.
Examples include:
- Amazon Web Services (also known as AWS, part of AMZN)
- Microsoft Azure (MSFT)
- Google Cloud (part of Alphabet, GOOGL)
E-Commerce
E-commerce involves the buying and selling of goods and services online. The latest e-commerce trends include mobile shopping and the use of AI, AR (augmented reality), and VR (virtual reality) for personalized shopping experiences.
Examples include:
- Amazon (AMZN)
- Alibaba (BABA)
- Shopify (SHOP)
Data Analytics
Data analytics involves analyzing raw data to find trends and answer complex questions. Machine learning and big data technologies are a trend that will probably continue well into the future.
Examples include:
- Palantir Technologies (PLTR)
- Splunk (SPLK)
- Tableau Software, which is a part of Salesforce (CRM)
Tech Stock Market Overview
Historical patterns among tech sector stocks show phases of rapid growth driven by innovation, investor enthusiasm, and speculative investments.
The rapid growth of tech sector stocks is often followed by significant market corrections when valuations reach unsustainable levels.
Two periods demonstrate the booming cycles in the technology sector:
- The Dot-com bubble of the late 1990s and early 2000s, where many companies were overvalued due to the hype surrounding new technologies related to the Internet quickly crashed in the stock market.
- The more recent tech-led stock market rallies, particularly in the mid-to-late 2010s after the recession of 2008
Nowadays, the majority of growth in the tech sector lies in modern advances, such as social media, cloud computing, and artificial intelligence.
What Are FAANG/MAANG Stocks?
FAANG/MAANG stocks is an acronym for shares of some of the most prominent and high-performing tech companies in the market:
- Facebook (now Meta)
- Microsoft
- Amazon
- Apple
- Netflix
- Google (now Alphabet)
These stocks are significant because of the following:
- Large market caps
- Influence on market indices
- Strong growth potential
- Significant impact on global technology trends
The market cap of FAANG stocks is around $10 trillion, accounting for over 20% of the S&P 500 total market capitalization. As of early 2024, they’ve been the biggest movers in the S&P 500, helping it reach its all-time high of $5,048 on February 12th.
Emerging Technologies and Trends
Emerging tech companies are in sub-sectors like cybersecurity, cloud computing, AI, and FinTech (financial technology). The most notable companies in these fields include:
- CrowdStrike (CRWD)
- Nvidia (NVDA)
- Snowflake (SNOW)
- Square (SQ), now known as Block Inc.
The biggest trends and innovations shaping the technology sector at the moment are:
- Artificial intelligence (AI)
- Internet of Things (IoT)
- Cloud computing
- 5G technology
Companies leading AI advances these days are Nvidia (NVDA) and Google (GOOGL).
Amazon (AMZN) and Microsoft (MSFT) are seen as the leaders in the IoT space and cloud computing.
Byte at First Sight: Final Thoughts on Tech Sector Stocks
Technology sector stocks are worth looking into as they represent some of the biggest and longest-lasting companies around. Tech innovations and products are unlikely to slow down anytime soon. Still, as with other stocks, stock prices fluctuate depending on market conditions and external factors.
Whether you opt for dividend or non-dividend stocks, having a diverse portfolio and considering different sectors to solidify your investments is always good, provided you've done proper research and due diligence.
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