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Tech stocks have generated impressive returns for investors over the past few decades. For proof, just look at the Technology Select Sector SPDR Fund (XLK), a popular exchange-traded fund that tracks the productive sector of the S
XLK’s functionality was largely driven through large-cap tech stocks such as Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Alphabet (GOOGL), and Meta Platforms (META), all members of the Magnificent 7. produced through those blue chips have been supported by transformative trends in cloud computing, synthetic intelligence (AI), cellular technology, and the Internet of Things (IoT).
Given those successes, investors would likely wonder whether a continued strategy of investing in the tech sector’s most productive stocks will continue to be profitable. The answer is not simple, as the investment landscape is subject to unforeseen changes. With interest rates returning to more popular levels, the explosive expansion rates of technology corporations may also begin to lose steam.
“Investors will most likely know upon their return that a giant component of the data generation sector is experiencing a cyclical expansion rather than a secular expansion,” says Jordan Irving, portfolio manager at Glenmede Investment Management LP.
If so, a careful array of inventories becomes a must-have tool for investors to take advantage of expansion opportunities. Fortunately, there are effective strategies to help investors select and identify the most productive tech inventories to buy. Here are three to consider.
The overall addressable market (TAM) is the overall spending or earning opportunity for a product or service. This serves as a metric to evaluate the prospects for expansion of investments in generation. The higher the TAM, the better, as it suggests enough cash to fuel the expansion of that specific product or service.
But what size is enough? While there is no absolute number, a TAM of at least $20 billion is used as a benchmark. For example, if a company captures a percentage of 5% of the TAM for that product or service, it would generate $1 billion in sales ($20 billion). multiplied by 0. 05%).
To locate data in a TAM, you can search the internet for companies such as Gartner, Canalys, Statista, and International Data Corporation (IDC). Although they rarely qualify a payment for full reports, research summaries come with existing spending amounts and expansion estimates.
The most promising TAMs are those that show transformative potential. Let’s consider the case of Netflix (NFLX) and its foray into streaming. When Netflix moved into subscription streaming from its DVD rental service, there was no awareness of this industry because the market was too new.
But one way to evaluate TAM is to look at overall entertainment spending. In 2009, this amounted to a whopping $1. 3 trillion, according to a study by PricewaterhouseCoopers.
In other words, it’s a huge opportunity for Netflix. And, of course, the company has benefited greatly from this. NFLX stakeholders were also handsomely rewarded. A $1,000 investment in Netflix inventory in 2009 is now worth more than $120,000.
Navigating a giant TAM comes with a caveat: you have to deal with fierce competition. That’s why investors in the most productive tech stocks want to examine and find the companies that offer the most attractive price proposition to customers.
Again, Netflix is a classic example. In 2010, the company established a transparent strategy to seize the opportunity in the streaming market. He highlighted the complex broadband infrastructure, which can be accessed from various devices.
Then there is the heavy investment in original content. This technique has paid off, as evidenced by its 20 million subscribers in 2010, which validates its business model. And in its latest earnings report, Netflix claims that the number of paying subscribers reached a record 260. 8 million.
Another case study on how to find the best tech stocks to buy is Salesforce (CRM). Co-founder and CEO Marc Benioff revolutionized the generation industry with the Software-as-a-Service (SaaS) style. This innovation replaced software delivery, allowing for immediate deployment and scalability by allowing users to use software over the Internet. This meant avoiding installation issues and minimizing the need for maintenance. Notably, this style also promises a steady stream of profits.
Salesforce’s strategy has been incredibly rewarding for its investors. The company, which priced its initial public offering (IPO) at $11 in June 2004, saw its percentage value rise to an all-time high of $285 in January 2023. And overall, Dow Jones stocks have since averaged an annual recovery of 23. 7% since operations began.
Skepticism was widespread towards Amazon. com (AMZN) in its early years due to heavy losses and the fierce festival of established corporations like Barnes
This cynicism is not unique to Amazon. In fact, this is a common thread for all the now-well-known tech stocks, such as Alphabet, Apple, and Nvidia. These corporations prospered because their leaders challenged the prestige quo.
Alphabet’s Google has been working to refine its search functions and monetize clicks, following the then-popular portal approach of its competitors. Apple has chosen to expand its proprietary platforms and invest in delivering unprecedented user experiences.
Nvidia expected the impact of AI early and identified the need for specialized chips, effectively adapting its GPUs (graphics processing units) to the AI revolution. This turn included the progression of a software system. It was an ambitious and unconventional move for a hardware-focused company, but it created a powerful and comprehensive ecosystem.
Investors interested in locating the most productive tech stocks to buy will need those that have a lot of skepticism about them. The presence of skeptics can be an indicator of a company’s commitment to innovation and creativity, essential ingredients for the long term. term good fortune and shareholder value.
Tom Taulli has been developing software since the 1980s, when he was in high school. He has sold his applications to publications. While in college, he founded his first company, focused on developing online learning systems. He later founded other companies, adding Hypermart. net, which was sold to InfoSpace in 1996. At the same time, Tom wrote articles for online publications such as Bloomberg, Forbes, Barron’s and Kiplinger. He has also written books, including Basics of Artificial Intelligence: A Non-Technical Introduction. He can be reached on Twitter at @ttaulli.