Technology Stocks: Riding the wave of innovation in the US market – Investing Abroad News

By Priti Goel

The technology sector encompasses companies involved in designing, developing, and supporting computer operating systems, applications and products related to it. It includes a wide range of industries such as computer hardware, software, semiconductors, networking and data storage.

The total market value of the world’s 20 biggest technology companies are worth over $20 trillion, nearly 18% of the stock market value globally. The technology stocks account for about 29.63% of the S&P 500 index. Semiconductors weigh around 30.74% in the market, software infrastructure around 26.99%, consumer electronics is 18.15% and software application is 9.99%.

The technology products are used by nearly every industry or sector in the economy and is the largest of the 11 sectors in terms of market capitalization. Technology stocks are known for their rapid growth, high volatility and often trade at higher price-to-earnings (P/E) ratios than stocks in other sectors.

Technology companies are a hot topic especially in the US markets. As of June 2024, some of the top technology companies by market capitalization are as follows (please note that these market cap changes on real time basis and is of a point in time).

1. Nvidia Corp (NVDA) is known for powerful graphic processing units (GPUs), and has the market cap of $3.42 trillion
2. Microsoft Corporation (MSFT) has a market cap of $3.29 trillion, It continues to be a dominant player in software, cloud services and hardware
3. Apple Inc (AAPL) boasts a market cap of $3.22 trillion, driven by iconic products in iPhones, iPads and MacBooks
4. Alphabet Inc Class A (GOOGL), Google’s parent company, has a market cap of $2.2 trillion and is involved in search, advertising and other digital services
5. Meta Platforms Inc (META) formerly Facebook, has a market cap of $1.3 trillion and focuses on social media and virtual reality
   Some of the other top technology companies with market cap between $350 billion to <$1 trillion are Taiwan Semiconductor Manufacturing Company (TSM, $925 billion, a major semiconductor manufacturer), Broadcom Inc (AVGO, $823 billion, provides semiconductor solutions for networking and communications), Tencent Holdings (TCEHY, $471 billion, involved in gaming, social media, etc), ASML Holding NV (ASML, $415 billion, specializes in photolithography equipment used in semiconductor manufacturing) and Oracle Corp (ORCL, $395 billion, offers database software and cloud services).

Some of the recent trends and innovations in the technology industry within the US markets are:

1. Generative AI – has gained momentum significantly. It is built upon existing technologies like applied AI and machine learning. It reduces application development time and brings powerful capabilities to non-technical users. A research estimates that gen AI has the potential to contribute upto $4.4 trillion in economic value and is being applied across various business functions like marketing, sales, product development, where it can create the most value.
2. Quantum Computing – still in early stages but holds promise for industries like automotive, chemicals, financial services, and life sciences. Can potentially gain upto $1.3 trillion in value by 2035 from quantum computing advancements
3. Indexing & Demand – technology companies now constitute over 20% of the S&P 500 stock market index. Constant innovation drives these companies forward, shaping the computing and internet products we use on daily basis
4. Edge Innovation – approx. 70% of companies are expected to adopt hybrid or multicloud management technologies, tools, and processes. This helps organizations with improved efficiency and agility
5. Breakthrough Technologies – MIT Technology Review’s annual list highlights key advancements across various domains, including AI, biotechnology, climate change, and cybersecurity

Investors are optimistic on the American Information Technology industry, trading at a P/E of 47.6x (higher than the 3 year average of 39.1x).

The United States and India have launched an iCET in January 2023. It’s an initiative on Critical and Emerging Technology. Since launch, both countries have made significant strides towards deepening and expanding strategic co-operation across key technology sectors that includes space, semiconductors, advanced telecommunications, artificial intelligence, quantum, biotechnology and clean energy.

Following areas draw particular focus (A few examples)

• Unlocking a combined $90+ million in US and Indian Government funding in areas of semiconductor technology & manufacturing, clean energy, and other critical and emerging technologies
• Announced first tranche of funding awards totaling nearly $5 million to support joint research projects in next generation telecommunications, connected and autonomous vehicles, & machine learning
• Launched ‘Innovation Handshake’ in March 24 that featured 14 Indian Startups and 12 American Industry representatives in clean energy technology sectors
• Celebrated U.S. Department of Commerce’s Global Diversity Export Initiative in February 2024 to deepen STEM partnerships between institutions at leading edge of innovation in technology such as AI, quantum, data sciences, space and financial technologies

And several more measures are being undertaken between the two countries. As innovation is a dynamic process, these trends will continue to evolve.

(Author is Founder and CEO of Prisha Wealth Management)

Disclaimer: Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of FinancialExpress.com. Readers are advised to consult qualified financial advisors before making any investment decision. Reproducing this content without permission is prohibited.