Internet technology investment. Everything You Need to Know About Investing in Technology | The Motley Fool


By Stephen D.

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Simpson Updated May 26, The technology sector is an inescapably huge investment opportunity for both corporate America and Wall Street.

It is the largest single segment of the market, eclipsing all others including the financial sector and the industrials sector. More than anything, technology companies are associated with innovation and invention.

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Tech is also notable for its rabid competition and rapid obsolescence cycles. With that constant drive to adapt and overcome competitors with new products, no company can rest easy for long in the tech sector.

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This rapid cycle of obsolescence means that winners and losers in technology do not necessarily maintain those positions for internet technology investment. Likewise, Apple was left for dead in the s but sprang back to the internet technology investment with its innovative smartphone products. Moreover, that dynamism and impressive growth make technology a must-consider sector for virtually every equity investor. While not every tech company fits into one of these four mega sectors, the majority do, and it is a useful way to talk about the sector as a whole.

As such, it is not surprising that software is a huge industry as well — on the order of hundreds of billions. Software is not noticeably cyclical in its own right, apart from the broader economic cycles that dominate business.

When recessions arrive, companies typically curtail their information technology IT budgets and reduce software purchases. Meanwhile, the opposite is true when recoveries begin.

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The software requires virtually no infrastructure and is difficult to protect via patents or copyright to any effective degree. Consequently, tiny start-ups with innovative new products can appear virtually overnight and with no warning.

A Primer on Investing in the Tech Industry

Though a software provider's reputation and ability to provide support after the sale are competitive factors and potential barriers, this is nevertheless make money fast 300 of the most fertile categories for new company formation and new product introductions.

Cloud computingfor example, allows several companies to offer software as an on-demand application typically through the internet or a closed network as opposed to code actually residing on an individual customer's servers internet technology investment hard drives.

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This "software as a service" has major implications for the development, distribution, and functionality of a multi-hundred-billion-dollar industry between software providers and the end-user.

Networking is in many respects a sub-sector of the other mega-sectors; it requires hardware which requires chips and software to function. That said, it is large enough and important enough to stand on its own.

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Broadly speaking, investors can divide their attention between those companies focusing on the consumer B2C, business-to-consumer and those that focus on "behind the scenes" business conducted between businesses B2B, business-to-business.

In many cases, though, companies like Amazon, Facebook, and Google blur those lines.

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InU. Although the software is increasingly replicating the functions of many pieces of hardware, there is still a major market for many types of hardware and the sector is not as obsolete as many believe. Company-wide networks and the Internet itself only work because of a huge backbone of equipment, and software is still ultimately just a set of instructions; there has to be a "something" to be instructed and to carry out those instructions.

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Getting a bit more specific, hardware can be broken down into many sub-sectors, including communications equipment, computers and peripherals, networking equipment, technical instruments, and consumer electronics. Consequently, investors should not rely too much on labels when deciding what is or is not to be considered "hardware.

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The semiconductor industry is a huge market on its own, but it is thought to enable four times more in physical products that rely upon those semiconductors.

Factor in all of the other types of products and services that depend upon semiconductors at least implicitly what could software do without a chip-using drone or smartwatch?

There are numerous types and categories of semiconductors.

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Chips can internet technology investment divided into analog, digital and mixed-signal circuits, but it is more common to discuss chips in terms of their ultimate function — like power management, microprocessors, microcontrollers, sensors, and amplifiers. Although semiconductors are ubiquitous, the industry is highly-cyclical and follows a boom-bust cycle of ordering and capacity construction.

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Despite that cyclicality, what matters most for companies in the semiconductor industry is the ability to design superior products more features per chip, less power consumption, more reliability, etc. What Investors Should Watch One of the other basic truths of equities is that tech stocks frequently sport higher premiums than almost any other market category.

In theory, this high level of valuation is the recognition of the above-average growth rates that successful technology companies post.

Investment and Pivots: IT, Internet, Telecommunication \u0026 Digital Technologies

In practice, though, even unsuccessful companies can carry robust valuations right up until the point where the market gives up on those internet technology investment prospects. Technology also has an above-average number of public companies that do not yet produce profits or cash flow.

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The absence of a track record forces investors to use more guesswork when building discounted cash flow valuation models. Investors can take some encouragement that research and diligence pay off in the tech sector.

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Understanding a company's products especially their advantages and disadvantages and those of its rivals can produce an investable edge.

Clearly, this is a sector where the details matter. Whether or not investors should concern themselves with valuations in the tech sector is a subject of ongoing debate.

As you can see above, the technology sector can be boom or bust. The same is internet technology investment of individual companies and market segments within the space. Sometimes a technology seems like it might be the next big thing -- think 3D television just a few years ago -- only for it to fail spectacularly in the marketplace. It's not even fair to call any of these three brands computer companies anymore. They operate in a variety of other segments that are all part of the technology market, including but not limited to: Artificial intelligence AI : This is where computers perform tasks that might have traditionally require a human brain.

Certainly, there are investors who have done well by following the growth and investing in category leaders or emerging threats to the status quo and nimbly moving from company to company irrespective of valuation.

On the other hand, investors who are not so nimble, as they believe or misjudge the competition, find themselves holding very expensive stocks with no underpinning of value to support them.

By Ryan Fuhrmann Updated Jun 25, The Internet has been one of the most revolutionary and disruptive technologies in history, creating a major paradigm shift.

Given the pervasiveness of technology, however, this is a significantly self-limiting view that cuts off one of the most dynamic and powerful engines to modern economies. A better compromise, then, might be to simply invest the time in careful research and self-education to invest where the valuations make sense.

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