It seems like tech stocks are always in the news. Back in the late 90s, the dot-com boom meant that a lot of promising companies were making big waves in the stock market. Of course, that boom eventually went bust in a big way. The technology sector is still more volatile than other investments. However, getting in on the right tech stock at the right time can mean a big reward. Consider how far companies like Apple and Amazon have come since the 1990s. The problem is discerning which stocks are all hype, and which have real promise.
First, it’s important to understand what technology is. This category is broader than many investors understand. Telecommunications companies like Verizon are tech. So are older companies like IBM. Both of these examples are companies that thrive on innovation. The level of innovation has waxed and waned over time, but each company has a track record of adapting to change and pushing their industries forward.
Other examples of tech stocks include e-commerce companies. These are businesses that focus on selling virtual or digital goods to consumers. It may surprise younger readers to learn that Amazon, the world’s everything store, started out selling just books. This led to an expansion into media generally, and finally into physical products like clothing and laundry detergent. eBay is another good example of an e-commerce tech company.
There are also tech companies that are more B2B in nature. For example, many companies focused on robotics or artificial intelligence are making things for industrial, not personal use. Robotics are used in everything from manufacturing to medicine. AI has the potential to revolutionize a variety of industries, from entertainment and gaming to marketing and HR.
Whatever the type of technology an investor’s interested in, it’s a good idea to look at some of an individual company’s metrics before investing. Revenue growth over time is an important one. High employee turnover can be a bad sign. The size of the customer base is important information. If a company makes components for one other company, that can be a bad sign: losing one contract could mean very bad things. Finally, the gross profit margin is as important in looking at tech stocks as it is in any other industry.