The internet provides an array of investment options: from crypto-currencies, commodities, to stocks. Recently, droves of Americans used their federal stimulus money to open stock brokerage accounts, demonstrating an eagerness to invest. The internet provides an array of investment options in tech investing from crypto-currencies, commodities, to stocks.
However, before delving into the stock market, there are guidelines and industry background investors should be aware of, which will help those buying Apple, Amazon, Facebook, or Google stock navigate their way.
A Glance at Tech Investing
Investors must understand that by purchasing a stock, they are becoming part owners of that company, meaning that they are giving the company their money to use for company operations. Thus, every investor needs to have some basic knowledge about the health of that company, and the best sources of this knowledge spring from the company’s most recent financial statements, including the balance sheet and income statement.
While the first look at these documents may provoke intimidation, one does not need to be a CPA to determine whether or not a company merits his or her investment.
First, the balance sheet provides investors with an overview of a company’s health. Here, one needs to determine the current ratio, which is a company’s cash reserves divided by its short-term debts. If the quotient is greater than one, the company is relatively healthy; if it’s greater than 2, the company is very healthy.
Next, investors should consult the income statement to discover a company’s profitability; this amount is found at the bottom of the Income Statement. Investing sites provide all of this financial information and more.
Tech stocks have soared over the past few years. The NASDAQ Technology Sector Index clearly illustrates this steep upward trend, with a YOY gain of over 30%. This index includes heavyweight tech stocks like Apple ($342.99, +1.24%), Amazon ($2,572.68, +1.09%), Google ($1420.75, +0.55%), Facebook ($232.50, +1.71%), Intel ($60.10, +0.77%), and ASML ($350.01, +2.02%).
These respective prices result from several determinants, including company performance, institutional investors’ willingness to purchase and hold them, as well as Federal Reserve Policy. Before investing, it’s important to know a stock price, as it will serve as the baseline from which to determine profit or loss.
Google competes with Facebook for ad-space, they also complement each other because marketers use both platforms. Google and Apple compete on many different levels, including the manufacture of devices, software, and smartphone operating systems (Android vs. IOS).
While most know Amazon as an online retailer, it also competes with Google in cloud services. Intel provides semiconductors, processors, and other chips for the aforementioned company’s devices; ASML, a company unknown to many, builds the complex machinery that Intel uses to manufacture tiny chips. By virtue of these differences, one can see how the tech industry is intertwined, being diverse and competitive, yet complimentary.
Tech stocks provide ripe profit-opportunity. Google, which changed its corporate name to Alphabet in 2015, is a solid investment choice, especially because its revenue stems from several sources. While Alphabet draws a huge chunk of income from GoogleAds, Google Cloud, and Android, it also fills its coffers with a lesser-known broadband service (GoogleFiber), and profits from its self-driving car technology (Waymo).
This revenue diversification is one reason why investors are willing to pay a premium for Google stock: losses in one arm of its business can potentially be covered by gains in others.