In this article, you’ll learn how to research the tech sectors' different industries and identify the stocks with the most promising outlooks. Keep reading for a deeper look into this exciting but risky slice of the public markets and a how-to on how to invest in tech stocks.
Why Invest in Tech Stocks?
Technology companies shape the future of many different industries. From robotics and artificial intelligence to information and analytics, many exciting innovations occur in this sector, and you can share in that growth by investing in tech stocks. The best tech stocks offer potentially outstanding returns, but it's a volatile sector and many once-solid companies have fallen to upstart competitors, regulatory concerns or their own inefficiencies.
Understanding risk and reward is crucial for any successful investing. Unfortunately, tech stocks have had a rough year as inflation and high interest rates do no favors for companies that depend on growth and innovation. However, rising rates don’t mean investing in tech is unwise. On the contrary, adding tech stocks to your portfolio can create profitable investments even if economic conditions seem less than ideal. In the next section, you’ll learn how to add the best companies to your portfolio without taking unnecessary risks.
How to Invest in Tech Stocks
Investing in tech requires due diligence since the sector is volatile and many companies have overextended during the last few years. You can’t just select your favorite names and throw money at them. Here’s a step-by-step process for developing an “invest in tech” plan and building a portfolio of promising tech companies.
Step 1: Research tech stocks that fit your investing criteria.
The first step isn’t exciting, but it’s the most critical. Without proper research and due diligence, investing can invite risk. What criteria are you most concerned with when it comes to tech investments? Strong financial balance sheets, industry-specific trends and product development lines could all be crucial criteria for selecting tech stocks. Be sure to research a company’s history, understand its financial position and choose the best stocks that fall under your particular umbrella.
Step 2: Have a plan for your tech stock investments.
When developing an investment blueprint, you’ll need to ask yourself the following questions before putting any capital to work:
- What are your time horizons for a particular investment?
- What are your profit goals for each stock?
- How much loss are you willing to accept from each stock?
- What changes in company structure or economic environment will cause you to re-evaluate your investing goals?
Before purchasing any tech stocks, know how much money you plan to invest, the duration of time you’re willing to hold the shares, the amount of profit you’re seeking to earn and the capital losses you’re ready to accept before bailing. Of course, not every investment will succeed — the goal is to maximize winning profits while minimizing the pain from the losers.
Step 3: Open and fund your brokerage account.
A brokerage account is how investors access public markets. You can’t purchase stocks through a checking or savings account, so you’ll need to choose a broker and fund your account before investing in tech stocks. You can easily open brokerage accounts online and there are plenty of options to choose from. Select the broker that best fits your needs, then open and fund an account.
Step 4: Determine how much capital to devote to tech stocks.
Having an investment plan is important for many reasons and especially for determining how much money to put into a particular sector or stock.
How much money should you put into tech investments? It depends on how much you have to invest, the length of your time horizon and how much risk you’re willing to take. Diversification is an important tenet here — never invest too much money into a single company, no matter how promising the outlook.
Step 5: Locate and purchase shares of your selected tech stocks.
Finally, purchase the shares of the companies you wish to invest in. Investing in multiple tech stocks can prevent a single company from dragging down your portfolio, but you also want to limit your stock selections to the firms that best fit your investment criteria. Each stock will have a three or four-letter ticker you can look up via your brokerage account. Decide how many shares to buy and execute your purchase.
Types of Tech Stocks to Invest in
The tech sector is not a monolithic entity. Plenty of exciting industries fall under the purview of the tech sector, including some of the most forward-thinking and innovative areas of the market. Here are a few examples of how to invest in tech companies.
AI technology seeks to perform tedious and monotonous tasks with speed and efficiency. Instead of viewing AI as a human replacement, most companies invest in AI to make life easier for their workers.
Companies like Uber and Lyft have disrupted the traditional public transit model by providing instantaneous and convenient travel at the press of a button.
Cord-cutting has been a major investment theme over the last few years as consumers break away from cable companies for a la carte streaming services. Netflix, Disney+, Hulu and YouTube are just some of the services that offer alternatives to traditional cable.
The IT industry is broad and encompasses many of the largest and most visible public companies in the world. Services, software and hardware equipment are three of the major components of this field.
Behind every piece of impressive tech is usually a printed circuit board populated with capacitors, resistors and processors. Semiconductors power many of the devices and widgets we use each day.
Web 3.0 is a complex area to describe, but most definitions feature a decentralized version of the internet where users control their own data. Many Web 3.0 projects have their basis in blockchain technology.
10 Popular Technology Stocks to Own
Researching stocks can be time-consuming, plus financial statements aren’t exactly compelling reads. Therefore, here’s a list of 10 popular tech stocks you can look up using MarketBeat’s research features. Not all of these companies will fit your specific criteria, but it’s a good place to start.
Intuit Inc. (NASDAQ: INTU) is part tech company and part financial services company. Creators of the popular QuickBooks program, Intuit provides software solutions and applications to help consumers and businesses get a better handle on their finances.
One of the largest companies in the world, Microsoft Inc. (NASDAQ: MSFT) is the tech giant behind a number of hardware and software applications such as Windows, X-Box, Office, Teams and Skype. Founded by Bill Gates and Paul Allen in 1975, Microsoft’s current CEO Satya Nadella has overseen impressive growth into new industries like AI and cloud computing.
Broadcom Corp. (NASDAQ: BRCM) may not be a household name like Microsoft, but the work they do in the semiconductor industry is important for the functionality of many critical computer systems. Operating in two divisions (Semiconductor Solutions and Infrastructure Software), Broadcom products are used in data centers, satellites and GPS systems, telecommunication equipment and smartphones.
Not many investors are likely to have heard of SS&C Technologies Holdings Inc. (NASDAQ: SSNC), but it’s an innovative company with plenty of promising products. SS&C provides software and services to the health care and financial services sectors, including data processing systems, portfolio management solutions and care management for health care providers.
Google / Alphabet
Alphabet Inc. (NASDAQ: GOOG) needs little introduction as the dominant player in online search functions across the globe. Google is behind many of the tech services consumers use daily, such as Gmail, Drive, Maps and YouTube.
Arguably the most successful public company in history, Apple Inc. (NASDAQ: AAPL) shows no signs of slowing down as it enters its fifth decade of existence. iPhone and iPad continue to dominate the smartphone and computer hardware industries, while the Apple App Store is a complete digital ecosystem on its own. New product lines like wearables and cloud services have increased the company’s reach.
The Salesforce Inc. (NYSE: CRM) stock symbol is CRM, which stands for “customer resource management.” The company helps clients engage with their customers through a variety of software solutions such as data analytics and online learning tools. Salesforce is also behind Slack, the popular business communications service.
The original ridesharing company, Uber Technologies (NYSE: UBER) has a vast network of services ranging from rideshare, delivery and transportation management. No longer just a taxi on-demand, Uber has links with local restaurants through UberEats and industrial transportation systems through its freight division.
Privacy and security are two important components of any successful tech company and Crowdstrike Holdings Inc. (NASDAQ: CRWD) offers solutions in both areas. Crowdstrike software can identify digital threats, protect consumer and company data and manage IT operations.
Bill.com Holdings Inc. (NYSE: BILL) began as an online payments processor but now helps small and mid-size businesses handle financial operations in multiple areas. Bill.com software can provide online invoicing, cash flow management and automated accounting services.
Pros and Cons of Investing in Tech Stocks
Has your interest in the tech sector been piqued? If so, it's important to know that tech stocks aren’t a golden ticket to profitable investing. Before buying a portfolio of tech stocks, it's necessary to understand the pros and cons of the sector.
Pros of Investing in Tech Stocks
Let’s take a look at some of the benefits of investing in tech stocks:
- Stock price appreciation: Many of the most successful companies in history, such as Apple, Google and Microsoft, “reside” in the tech sector.
- Profit from Innovation: Tech companies are problem solvers and many of the advances we’ll see in the future are currently researched and developed at companies within the tech industry. Tech stocks often bet on a brighter future.
- Diverse sector: Tech companies have their hands in a number of different industries. An investment in tech isn’t simply an investment in a single area like consumer staples, airlines or oil and gas. Investing in tech means having exposure to several different areas of the market.
Cons of Investing in Tech Stocks
What are the downsides of investing in tech stocks? Let’s take a look:
- Growth over everything: Tech stocks tend to prioritize growth and expansion over profitability and shareholder returns. Many tech companies eschew dividends in favor of R&D and new product lines (particularly biotech stocks), which increases volatility and may not appeal to risk-conscious investors.
- Fierce competition: The most successful tech companies eventually become targets for upstarts and they must have constant innovation to remain at the top of the heap. For every Microsoft or Google, there’s a Pets.com or WebVan that floundered in the face of stiffer competition.
- Potential reliance on low rates: Since tech companies are always looking for growth and expansion, taking on debt is a necessary evil. When debt becomes expensive in rising interest rate environments, tech companies may not have the same success they did in decline rate environments.
Investing in Tech Stocks is High Risk / High Reward
Still wondering, “Should I buy tech stocks now?” An investment in tech is an investment in future progress, but progress isn’t always a linear achievement. As you learn more about how to invest in technology, you’ll find that tech stocks are volatile and always subject to changes in economic and regulatory environments. The winners in the tech industry are some of the titans of the stock market, but the losers tend to fade into obscurity.
If you have the proper risk tolerance and investing mindset, tech stocks can be a path to gains beyond the typical index fund. However, if you lack the stomach for volatility and risk, investment in a different sector might be more beneficial. To learn more about this exciting sector, visit MarketBeat’s tech sector page.
Not sure tech is for you? Consider retail sector investing ideas or the utilities stock sector instead of researching the best tech stocks to buy now.