The technology industry includes everything from major companies that everyone knows, to players both big and small that operate largely behind the scenes.

The category is also home to emerging companies of all sizes, start-ups, and billion-dollar household brands.

In a broad sense, the category includes stocks involved with the research, creation, and distribution of technology-based goods or services. That can be everything from computers to software, televisions to websites. 

Hardware is the physical device — a computer, a television, a smartphone, etc. Software is the computer code and platforms that make those devices work. 

Technology stocks offer investors a lot of opportunities. In fact, the sector offered the highest returns of all ranked market sectors at 34.28% in 2017.

Those strong returns, however, do not mean the technology sector is without risks. Technology changes quickly, and one-time leaders can quickly fall behind, or even go out of business.

In addition, promising emerging companies may make a huge splash, only to fade out quickly.

So what investment opportunities are available for you in the technology sector, and how can you invest in technology innovation? Find the answers below.

• What are Some Technology Innovation to Invest in?
• Who can Invest in Technology Innovation?
• Which Technology Stock can you Invest in?
• What are some Examples of Technological Innovations?
• What is Technology Investment?
• Is it good to Invest in Technology Fund?

What are Some Technology Innovation to Invest in?

Technology is an exciting space that includes trends from artificial intelligence (AI), to smartphones, blockchain, self-driving technologies, the ongoing to trend to software-as-a-service (SaaS), the Internet of Things (IoT), streaming media services, and more. It’s an area full of opportunity, but also some risk.

Read Also: How to Achieve Technology-Driven Revenue Growth

Technology is a wide-ranging term: It has expanded far beyond what would have once been considered the typical tech stocks, including computer companies like Apple, Microsoft, IBM, and others.

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:

1. Artificial intelligence (AI)

This is where computers perform tasks that might have traditionally require a human brain.

AI also encompasses  deep learning (where data scientists build computer models inspired by the structure and function of the human brain that essentially reproduces our ability to learn), and machine learning (a type of AI where computers learn without being specifically programmed to).

Amazon’s Alexa might be the most famous AI, though IBM’s Watson has also achieved a lot of media attention.

2. Smartphones

While Apple and Samsung lead this space, there are lots of secondary players making components, software, apps, and phones. “Smartphone” is sort of a catch-all name for handsets that can run apps, programs, and nearly anything else a computer might be able to do.

3. Blockchain

While blockchain has gotten a lot of publicity because it’s the technology behind Bitcoin and other virtual currencies, it’s more than just an alternative payment method.

Blockchain is “the digital, distributed, and decentralized ledger tethered to most cryptocurrencies that are responsible for recording all transactions without the need for a financial intermediary.

In other words, it’s a transparent and immutable (i.e., unchanging) log of all transactions that don’t involve banks acting as a third party,” according to The Motley Fool’s Sean Williams.

4. Self-driving technologies

Companies including technology leaders like Alphabet subsidiary Waymo, Tesla, and most major auto manufacturers are working on creating self-driving cars.

In most places, that’s not even legal yet, but some driver-assist technology has already come to market, and it’s likely that self-driving cabs and even trucks will be in at least limited use reasonably soon.

5. Computers and software

These are the companies that make the laptops, desktops, and tablets, and the software that runs them. This segment also includes component players like Intel and Advanced Micro Devices, which make the chips and processors that power computers, but also bigger well-known brands like Apple.

6. The internet

Think of companies like Alphabet’s Google, Microsoft’s Bing and MSN, Twitter, and Verizon’s Yahoo, along with companies like Yelp that offer purely digital products. Most of these players are at least partially supported by advertising revenue, though some sell subscriptions and monetize in other ways.

7. The Internet of Things (IoT)

The IoT is the network of devices connected to each other and the cloud — the public internet that allows for links between far-flung systems. It’s everything from a smart thermostat that can adjust the temperature in your home to complex medical equipment that can order its own repairs.

8. Streaming Media

You could argue that Netflix is an entertainment company, but it’s also a technology company that has created its own infrastructure. Netlfix creates content for its streaming platform, but it also creates and maintains the platform itself.

A company like Roku, which makes streaming media players, is more of a traditional technology sector stock, but could also be considered a member of the next category as it manufactures devices.

Streaming media has been growing as consumers look to cut the cord with cable, a trend that has been accelerating.

9. Device companies

Players including Roku, GoPro, and Fitbit make devices driven by technology. In many cases, they also make the software that makes them run and gives them added functionality.

10. The Cloud

The cloud is a system of computer storage that allows information and services to be accessed by devices from anywhere. The cloud allows companies (and individuals) to use services that are not resident in their devices. Amazon, Google, IBM, and Microsoft are all major cloud players.

11. Cybersecurity

With data now housed in the cloud, on our devices, and even in the chips in our credit cards, keeping information secure has become a growing industry. Cybersecurity is about making sure information is only accessible to the people who are supposed to see it.

12. Chip/Component makers

Some technology companies don’t make finished devices at all, they make the parts that go inside them. Intel is a good example of this, as the company makes the chips and processors that make computers work.

This segment also includes companies that make memory, screens and other parts that go into technology devices.

Who can Invest in Technology Innovation?

Technology stocks offer opportunities for both novice and experienced investors. Companies like Apple, and even smaller players like Roku, offer a chance for people to buy shares in companies whose brands have become integral parts of their lives.

It’s also a space where the average person can jump on emerging technology that they have experienced and believe will become a part of the future.

The technology space offers opportunities for both growth investors and income investors, who can choose from several mature, established companies. Of course, because this is a sector that’s rapidly developing, there’s some growth opportunity even in mature companies.

Trying to get a clear picture for the value of a technology stock can be difficult as sometimes the products and revenue streams can be more complex than a consumer goods company, for instance, like Johnson & Johnson selling brands and products the average individual is familiar with.

Companies can be valued using a number of methods, including earnings-based valuations, revenue-based valuations, cash-flow based valuations, equity-based valuations, and member-based valuations.

Growth investors might like

Growth investing is buying shares in companies that you expect will grow a lot in the future. You often pay a premium for them — but these stocks aren’t being valued for what the company has already achieved, but for what it might achieve going forward.

These stocks often have a lot of analyst attention, sometimes belying the actual size of the company.

Of course, getting in early on a stock can bring tremendous returns. Facebook, for example, priced its initial public offering (IPO) at $38. Shares actually dipped to about half of that at times, but at the time of writing, shares were around $180, more than four times higher.

Roku, which went public in September, grew its overall revenue by 28% year-over-year to $188.3 million driven by platform growth of 129%.

The company is unlocking growth opportunities by pivoting from being a device company to one that licenses its technology to other players. It has also significantly grown its advertising business.

Unlike many growth players, Roku is profitable, making $73.5 million in gross profits in 2017. That number, however, barely touches the surface of the potential the company has, although it’s battling some much larger companies (Apple, Amazon, and Google among them).

When you decide whether to invest in one of these companies, look at valuation but also the market potential.

There’s no single method for doing that, but you should consider the company’s forward earnings projections, and earnings growth rate for calculating forward price-earnings ratio and the PEG ratio.

For growing companies paying attention to free cash flow and debt will help investors get a better picture of the overall financial health of the business.

Income investors might like

The technology sector, of course, also offers investors the opportunity to invest in well-established companies that offer income in the form of dividends, a distribution of a portion of a company’s earnings to shareholders.

In fact, the technology space houses some dividend aristocrats — members of the S&P 500 index that have had a minimum of one dividend increase annually for at least the last 25 consecutive years.

Of course, the fast-changing nature of tech actually suggests that income investors should look at companies that don’t quite make the 25-year threshold. Many of today’s top technology players were either in their growth phase or did not exist 25 years ago. Apple, as an example, only went public in 1980.

Technology as a sector generally offers lower yields — just over 1% on average — than the S&P 500’s average yield across all sectors of 2-2.2%. That’s at least partly because it makes sense in many cases for technology companies to invest more heavily in research and development than other sectors.

Still, it’s possible to find high yields (a yield is a dividend expressed as a percentage of the current share price). Microsoft, for example, offers a 1.83% yield and has grown its dividend for 14-straight years. 

Which Technology Stock can you Invest in?

It’s not easy to nail down exactly what a technology stock is. Most of these companies are clearly tech companies, but Netflix and Tesla could arguably be considered an entertainment company and a car company, respectively. 

Stock	Ticker	Market cap	P/E ratio
Apple	AAPL	$841 billion	17.1
Microsoft	MSFT	$733 billion	77.47
IBM	IBM	$133 billion	23.61
Intel	INTC	$241 billion	25.9
AMD	AMD	$9.73 billion	251
Tesla	TSLA	$48 billion	N/A
Roku	ROKU	$3.18 billion	N/A
Netflix	NFLX	$142 billion	262
Amazon	AMZN	$739 billion	248

1. Apple

One of tech’s true titans, Apple has a loyal following for its iPhones, Mac computers, and iPads and Apple TVs. The company does not dominate when it comes to market share, but it sells its devices at consistently high prices compared to its rivals.

The company also has many of its phone customers locked in to replace their phones every year or every second year, which keeps profits flowing.

Apple has a lucrative business selling entertainment and apps. It controls the store for iPhone and iPad apps. That allows the company to take a piece of the profits, while also ensuring that only apps that meet its standards make it to its platforms.

That creates what’s known as a sticky ecosystem — an environment where a customer has to stick with Apple to utilize all of their previous purchases, which can be leveraged to get consumers to buy new devices and remain in the ecosystem. 

2. Microsoft

Once the unquestioned leader in this space, Microsoft went through some stumbles as smartphones and tablets began to challenge traditional computers.

That made Windows, the company’s operating system (OS), less dominant, and created sales challenges for the company’s Office suite as well.

Tablets and smartphones running Android and Apple’s iOS could perform many computer-like functions. That made Windows less necessary and gave consumers an option.

That also impacted Office, because for many years Microsoft barely supported Office on Mac computers, and did not offer Android or Apple iPhone and iPad versions.

Over the past few years, however, CEO Satya Nadella has righted the ship. He has opened up the company’s products to all platforms, invested heavily in the cloud, and moved Office to a subscription model successfully.

Now Nadella has bet heavily on AI and IoT, positioning the company to continue to profit from its established products while also setting it up for future growth.

3. IBM

Today’s IBM shows just how much a technology company can change over the years. A brand once known for being a pioneering leader in home computing no longer even operates in that space.

Instead, the company has recast itself as a cloud computing player and a leader in AI with its Watson-based initiatives, consulting services, and data farms.

During its transformation, IBM had the support of Berkshire Hathaway and its CEO Warren Buffett. Interestingly, Buffet’s company sold off most of its stake in the company right as it began to show signs of a turnaround. 

IBM had suffered through five years of declining revenue before reversing that in the fourth quarter of 2017 and continuing to grow in the first quarter of 2018.

That’s good news for investors, but the company is still finding its way and developing a market in emerging spaces, ranging from machine learning to automated driving and more.

4. Intel/AMD

Both of these companies make computer chips, processors, and other internal computer parts. That’s not a publicly visible business, even though Intel has made significant efforts to get its name out there with its “Intel Inside” labels.

This is a growing space, driven partly by gaming and the need for better and faster processors to run functions like virtual and augmented reality.

Still, increased competition from rivals including Nvidia has pushed both Intel and AMD to focus on improving design, creating smaller chips with higher yields, and generally trying to do more for less.

As an investor, these can be challenging stocks to follow because of their lower public profiles and reliance on partnerships. Still, you can partially anticipate sales for Intel and AMD based on which devices are using their products. For example, Intel provides processors for Apple’s iPhone.

That business may not be a long-term partnership, but if Intel is inside the next generation of iPhones (as it’s expected to be) then shareholders get a year of predictable sales for a sizable chunk of the company’s business.

5. Tesla

Like some of the other players on this list, Tesla is not purely a technology company. It’s a car company that differentiates itself with technology. The company is also a pioneer in the battery space and is creating advanced solar-powered solutions. 

The biggest challenge for Tesla has been ramping up production of its lower-priced Model 3. In theory, if the company could hit its Model 3 production goals, its long-term future would be more clear.

Until that happens, however, the company continues to burn cash, and it runs the risk of being choked out of business by more-established car companies as they move more fully into electric vehicles.

6. Roku

A tiny player that has done well fending off giants, Roku makes streaming players and licenses its technology for embedding in televisions. The company, as noted above, also sells advertising, which has been a growing business.

Roku operates in a market that’s still developing. As consumers cut the cord with cable, more people will opt to buy devices or televisions that can access the various streaming services.

That creates demand for Roku, which has a product line that covers entry-level through upper-tier devices.

The biggest challenge for Roku is that the other players in its space are Google, Amazon, and Apple. So far, the company has more than held its own, but there’s certainly risk associated with competing with rivals that can outspend you into oblivion.

7. Netflix

You can’t define a company that produces so much original content as a pure technology play, but Netflix’s foundation is its streaming platform. The company has leveraged that platform to grow its subscription-based business globally.

It now has 118.9 million paid members, split somewhat equally between the U.S. (55 million) and the rest of the world (63.82 million), as of the end of the first quarter of 2018.

In Q1 the company saw its revenue jump by 40.4% to $3.7 billion. That was its best quarter for growth since 2011 thanks to a recent U.S. price hike. In addition, Q1 saw the company add 7.4 million customers after adding 8.3 million in the previous quarter.

Netflix still has considerable room for growth, both in its home market and globally.

The company will be helped by cord cutting and increased adoption of streaming devices and streaming-equipped TVs but it will also have to continue to invest billions in content ($8 billion in 2018) to keep current users happy and bring in new ones.

8. Amazon

The online leader is, of course, a retailer, but it’s without question also a tech leader. In addition to developing its own digital platform Amazon has become a device leader with its Echo speakers — which have the Alexa digital assistant embedded — its Kindle tablets and e-readers, and its Fire TV products.

Alexa on its own would make the company a tech powerhouse, as the AI/voice-controlled assistant has set the standard for consumers when it comes to offering practical, useful in-home integration.

Amazon also has a pure technology play in its growing Amazon Web Services cloud business. AWS produced over $20 billion in revenue in 2017, making it the largest provider of cloud services, and it has shown no signs that growth will slow down any time soon.

What are some Examples of Technological Innovations?

Technology is the heart of the operation of business organizations. Technological innovation will spur you to improve the process of manufacturing your products and services.

One of the most useful technological innovations examples is the innovations in renewable energy. The innovations include technological inventions such as wind turbines, photovoltaic cells, concentrated solar power, geothermal energy, ocean wave power and many other emerging innovations.

These value innovation examples of disruptive technology will undoubtedly add value to sustainable development.

Innovation in Business

No doubt, without innovation in the workplace, no business establishment can record any significant growth.

The onus is on the management of business organizations to put in place a system that promotes collaborative innovation among its workforce to harness their skills and use it to the advantage of their business activities.

Innovation in business can be achieved in business when the management promotes healthy working relationships with the workers. The management should ensure that the workforce always feels at home while discharging their duties.

Furthermore, during the brainstorming sessions, business managers should allow their employees to share and opine the views about the activities of the business organization.  

The following examples are organizations that achieved innovation in their business activities:

Google: Google is one of the most prominent computing innovation examples, offering a much better online experience for consumers. It also is included as one of the biggest breakthrough innovation examples from its introduction of Adwords, which changed the advertising world.

Facebook: Facebook is regarded as one of the most successful innovation examples and established the social network market. 

WhatsApp: established the personal communications market, one of the best examples of being innovative with consumers’ day to day activities.

Overall, innovation is very important to business, especially in today’s hyper-competitive environment. In this article, we looked at organizational innovation examples and at different types of innovation with examples.

What is Technology Investment?

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. Investors expect considerable expenditures on research and development by technology companies, but also a steady stream of growth fueled by a pipeline of innovative new products, services, and features.

Why the Tech Industry Is Important

​These products and services are then disseminated throughout the economy. There is no sector of the modern economy that technology does not touch and that does not rely upon the technology sector to improve quality, productivity, and/or profitability.

Tech is also notable for its rabid competition and rapid obsolescence cycles. Although the examples have been used so often they have become cliché, it is nevertheless still a fact that computers used to occupy entire rooms, 16 GB of hard drive storage was perfectly adequate for a tablet, and cell phones used to flip open and closed.

With that constant drive to adapt and overcome competitors with new products, no company can rest easy for long in the tech sector.

This rapid cycle of obsolescence means that winners and losers in technology do not necessarily maintain those positions for long. Microsoft was founded in 1975 and after dominating in software for computers, has had to play catch up in the mobile space.

Likewise, Apple was left for dead in the 1990s but sprang back to the vigor with its innovative smartphone products. Moreover, that dynamism and impressive growth make technology a must-consider sector for virtually every equity investor.

What Investors Should Watch in Technology Innovation

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.

In practice, though, even unsuccessful companies can carry robust valuations right up until the point where the market gives up on those growth prospects.

Technology also has an above-average number of public companies that do not yet produce profits or cash flow. 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. 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.

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.

Is it good to Invest in Technology Fund?

As the name suggests, these funds invest only in stocks that are a part of the technology sector. Most of these funds invest in names like Infosys, Wipro, HCL Technologies, TCS, Mindtree, etc.

These funds cannot invest in any other sector except technology. A typical portfolio would comprise the top 10-20 technology companies.

The returns from these funds are dependent on the growth in revenue & profits of technology-based companies. Most of these companies export software and provide services to global clients.

Thus, the success of these companies is linked more to the economies and regulations in other countries, especially the US and Europe. Some of the Indian technology companies are market leaders in certain segments.

Most of them have grown primarily on the back of cheap labour cost, English speaking population and reasonable tech skills in India.

Of late, stricter regulations in some countries and a lack of innovation have hurt Indian technology companies. This has a direct impact on the performance of technology funds.

Should you Invest in them?

Technology is the buzzword today with rising usage in every sector and aspect of life. Globally, some of the technology companies are among the largest corporations in the world and also among the best-performing stocks.

NASDAQ, the technology index in the United States, has been one of the best performing global indices. This is because of a rapid increase in digitization and innovation which these companies have done.

On the other hand, most of the Indian technology companies have operated with a business model of providing software and backend services to corporations in the west.

They have been pretty successful in doing so owing to a young English speaking population and labour arbitrage. However, they have lacked innovation to propel them to the big league of the best global technology companies.

Most of the Indian technology companies for example have steady revenues and cash flows but growth has been lacklustre. Earnings growth is the most important factor for a stock to do well.

Read Also: How to use Blockchain Technology in Converting Relevant Leads for Business

This has been missing in the case of Indian companies which is also reflected in the returns from technology stocks and technology funds.

Going forward, returns from technology funds would depend on future growth these companies are able to exhibit. These funds are also prone to volatility owing to movement in currency and change in regulations.

We recommend avoiding investment in technology funds due to the above-mentioned reasons. If you want some allocation to the best technology companies, it is advisable to invest in multi-cap funds that hold some allocation to the best technology companies/stocks.

Final Thought

Some investors continue to stay well clear of the entire technology space and regard it as impenetrable and irrational. 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.