According to senior account manager Nathan Levy at Market Haven, IT-related shares offer immense potential, and the IT sector of the ASX comprises various options to choose from. You may already know some of these as major players in the industry, while others are smaller companies that have yet to gain traction. Altogether, the tech sector has household names, emerging businesses, and promising startups.
These companies play a role in everything related to technology, such as researching, developing, and distributing products and services. And these products can include both hardware and software, so many investors are wondering whether they should invest in tech-related stocks on the ASX. Nathan Levy of Market Haven explains that there are a few things to consider before investing in tech-related stocks.
Different ASX Tech Shares
Currently, the tech space provides immense opportunities for traders thanks to continuing growth. Even though inflation and interest rates have resulted in economic uncertainty, most ASX tech shares have performed quite well over the past year. In addition to that, it has outperformed other areas of the market, including healthcare, in the last five years.
But despite offering major returns, there are a few risks associated with the tech industry. For instance, technology can change quite rapidly, so companies that are now industry leaders could fall behind due to a lack of development.
Similarly, new companies that start out with great potential may eventually fizzle out. So even though there’s plenty of innovation, investors should be prepared for risks.
The Volatility of Tech Markets
When you’re looking at tech-related stocks on the ASX, it’s represented by ASX:XTX, which is the All Technology Index. It tracks technology related to healthcare applications, interactive media, consumer electronics, and the IT sector.
Nathan Levy of Market Haven explains that most tech stocks have the potential to deliver high rewards, but the risks are equally high as well. Because they’re driven by innovation, companies have a need to consistently develop cutting-edge products.
In a bull market, tech shares tend to perform well because of low-interest rates and high confidence among consumers and investors. However, in a bearish market, tech companies can take a hit. This is usually because many tech companies are still young and have yet to make a profit. As a result, they’re prone to significant decreases in share prices – particularly when investors are nervous.
Multiple Areas of Investment
Nowadays, tech shares extend beyond major conglomerates like Microsoft and Apple. Companies are grouped into segments such as artificial intelligence, blockchain, cybersecurity, and streaming. It’s important that investors take a detailed look into the different segments to understand a tech company’s products and applications.
There are also tech ETFs, which invest in different shares, but are visible as a single share on the ASX. ETFs usually track a certain index, offering investors a way to own a complete sector without purchasing each individual share. A good example is of buying an ETF that includes all 200 of the ASX 200 shares. Or, you can select a smaller ETF that includes artificial intelligence companies.
To conclude, Market Haven senior account manager Nathan Levy states that there are various tech shares in the ASX with immense potential. Nevertheless, investors should understand them before buying.