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Technology Keeps Advancing, How Can Investors Join In?

August 16, 2016
Technology investment advice for stock traders looking at new markets.

Many are forecasting the U.S. economy might grow by about 2% annually for the remainder of 2016 and for the next few years. This growth is well below the 5%-plus annual rate achieved between 2002 and 2007, before the financial crisis.

The sluggish progression in the broader economy is prompting some investors to search for industries with higher growth potential. Thanks to innovation, and an entrepreneurial drive to make life better, technology is one of those industries frequently under consideration.

Unlike some other industries such as financial, basic materials, and utilities, the technology industry is frequently evolving. Let’s get to know five relatively new segments of technology with growth potential and some of the companies involved in these segments.  Example companies are included as representative of the segment, but are listed for illustrative purposes only, and should not be considered recommendations.

Big Data: huge data sets that companies analyze to find patterns, trends, or associations, particularly in interactions between and behaviors of people.

Example companies:

  • Splunk (SPLK)
  • Terradata (TDC)
  • Tableau Software (DATA)
  • Qlik Technologies (QLIK)

Application of big data: A restaurant analyzes customer data to determine which dishes are ordered when it’s cold outside. The restaurant stocks extra ingredients of these dishes when the forecast calls for colder temps.

Artificial Intelligence (AI): computer systems designed to perform tasks that traditionally require human intelligence; example applications of AI include: translating languages, making decisions, recognizing speech, and identifying visual objects.

Example companies:

  • IBM (IBM)
  • Apple (AAPL)
  • (AMZN) 
  • Google (GOOG, GOOGL)

Application of AI: A car that drives itself.

Cloud Computing: using a network of computers connected by the Internet to save, access, manage, and analyze data in place of a personal computer.

Example companies: (CRM)

Qualys (QLYS)

Rackspace Hosting, Inc. (RAX)

Workday (WDAY)

Application of cloud computing: Searching for and playing music on your mobile device that is stored and served by a network of computers.

3D Printing: creating physical objects from digital models, usually by successive thin layers of materials like plastic, nylon, epoxy resins, metals, wax, and polycarbonates.

Example companies:

  • 3D Systems Corporation (DDD)
  • ExOne Co. (XONE)
  • Voxeljet AG (VJET)
  • Stratasys (SSYS)

Application of 3D printing: Designing and printing a custom protective case for your mobile phone.

These segments of technology may have the potential to deliver higher growth in what might be a low-growth environment for the broader economy and other industries. However, with the potential for higher growth comes higher risk, particularly among small companies.

The 3D printing segment provides a good example of the potential rewards and inherent risks when investing in new technologies. Take DDD, for instance, which from late 2012 to early 2014 rose from about $25 to almost $100 per share. Since early 2014, however, DDD dropped from about $100 to as low as $6.

One way to help manage extreme fluctuations, like those seen in 3D printing stocks, is by holding a diversified portfolio across a broad range of industries. By avoiding concentrating a portfolio in a single industry, or even a segment of an industry, investors might benefit from higher growth potential while managing the risk that comes along with it.  

And last but not least is one segment that’s a bit more mainstream and familiar to almost anyone, but still worth mentioning: Social Web.

Social Web: a set of relations that link people with similar interests and tastes through the Internet.

Example companies:

  • Facebook (FB)
  • LinkedIn (LNKD)
  • Yelp (YELP)
  • Twitter (TWTR)

Application of the social web: Eating at a local restaurant, taking pictures of dishes, and writing a review on an app or web site.

When all is said and done, what’s the best way for an investor to research opportunities in the future of technology across all of these segments? During earnings season, pay attention to what companies in the space say about trends and opportunities in their particular segment. Mine their earnings reports to better understand how specific companies are drawing traffic to their sites, and how that traffic has gone up or down compared to the previous quarter. For many of these firms, particularly the social web companies, advertising revenue is a critical indicator of their health, so watch it closely. And read everything you can in the media about segments you’re interested in to get a sense of industry trends and coming developments, and then monitor over time to see if the companies you’re tracking make progress in reaching their goals.

 Visit TD Ameritrade for more information and additional resources to help guide your trading and investing plans.

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