In the early 2000s, tech stocks were almost a sure thing. At the height of the tech bubble, tech stocks were known as rapid growth instruments, which would boom suddenly and then sharply decline. Today, the tech stock market is slightly more volatile, and tech stock IPOs can be unpredictable. While there still is room for tremendous growth, there are also some cautionary issues.
The Pros of an Inherently Volatile Market
For many, tech companies are still developing “money from nothing.” Most tech stocks are driven through intangible assets: intellectual property, community outreach, and branding. Consequently, it’s difficult to create a thorough valuation. This presents some tremendous opportunities for scaling upwards and developing growth, because the market is so unpredictable. Amazon is an excellent example of this: the company’s primary business model (an online bookstore) no longer accounts for the vast majority of its sales. The stock showed huge growth once the company developed related technologies, such as their Amazon Web Services model.
The Cons of Tech Industry Investments
With volatility also comes risk. A major problem with tech stocks is that they may not be prepared for monetization when they are initially offered — or they may not even have a clear monetization path. This was the issue with Facebook’s IPO and Twitter’s IPO, both which saw sharp declines. Though they had incredible outreach within the tech market and remain a successful enterprise, neither had a clear monetization path when they were initially offered. This lack of cash flow in made many investors shy away. The tech industry also has very little that is entirely proprietary: there are always competing markets. To extend the Facebook example, no one knew that MySpace would be supplanted by Facebook so quickly when it was sold for hundreds of millions of dollars, and no one knew that a newer generation would embrace Instagram and Vine in lieu of Twitter.
[su_note note_color=”#f7f7f7″]Financial counseling and financial planning must be done one-on-one for any investment or retirement account. It’s impossible to say whether purchasing a tech stock IPO would be right for your financial portfolio without a thorough personal finance overview. Follow FMT Advisory for more information about building your savings, investing your money, and general market analysis.[/su_note]