Some are likely to have painful memories of investing in the technology sector, as it underwent a large bubble market at the beginning of the 2000s, known as the ‘dotcom mania’. With the rise of the Internet, investors became extremely giddy about the prospects of any company associated with it, and bid up prices to astronomical levels, with the underlying idea that the Internet would change and disrupt everything.

The bubble, of course, burst and many investors were left decimated as a result. Nevertheless, if we fast forward 20 years, we can see that those investors in the early 2000s were not wrong; they just got too excited, too early. Now technology has become ubiquitous. Indeed, technology is important, very important, both for investors and society as a whole! This was most evident during the Covid crisis of 2020, where technology played a crucial role in allowing economic life to continue; without it, the economic fallout from Covid would have been several orders of magnitude worse. But as it happened many people were able to continue working from home, using the Internet and the relevant software and hardware, and were also able to consume from home, using online retail outlets.

Meanwhile, for investors, the fact that technology was able to play such a pivotal role in managing the pandemic also meant that losses in the markets were limited, and even turned into significant gains, especially for those that had heavy allocations to the technology sector. It is also not a surprise that the biggest stocks in the world are found in the tech, or adjacent sectors such as communication services. The tech sector, especially in the United States, makes up an increasingly large share of the overall market, highlighting that the structural, transformational growth that people were hoping for in the early 2000s is happening.

Some may say that given this recent strong rise of tech stocks means they are once again showing bubble-like conditions, as was the case in 2000. While it is certainly not crazy to think that there is some overvaluation in some parts of the market, the difference in today’s market is that most of the large technology firms are generating vast amounts of earnings, and growing these at high rates year-over-year. So, while in 2000 the idea investors had around the transformational impact of technology was right, the substance was missing. Now, though, this substance is here and looks here to stay.

Looking forward, and at the main growth opportunities in the global economy, most, if not all, are connected to the technology sector. The move towards driverless cars, for example, needs heavy tech input, in the form of sensors, software, semi-conductors etc. The energy transition also entails major digital transformation of electricity supply systems, as well as increased advancements in battery production and innovation. Capital expenditures are also increasingly moving into the digital realm; think, for example, of companies increasingly moving towards running their business through cloud computing, allowing major savings and efficiency gains. In fact, for almost all businesses, to stay competitive, it has become increasingly necessary to dedicate significant resources to building technological capacity. This won’t change anytime soon.

So, what we are saying here is that although the tech sector may undergo periods of underperformance, it is highly unlikely to be in a bubble, and any investor with a long time horizon should be thinking about large allocations to technology. At FWU Invest, we continue to see big potential in the sector, and investing with us means you can benefit from the best technology has to offer!