In terms of investment, the technology sector has proven to be a volatile market; share value in this field has been subject to precipitous investment market. Some of that volatility reflects the relatively embryonic state of some technology markets, though it also comes from a heavy reliance on forecasted future growth, combined with the concentration of market power among a relatively small number of companies.
Some Approximations in the History of Industry Development
Like the early days of the automobile, we are about to see widespread adoption of this technology. There were a lot of companies that started but not many that lasted the long haul. This context has a second use that is somewhat humble — a reminder how hard it is to predict which tech juggernauts will ultimately dominate which markets. A hypothetical scenario where it is no longer obvious who the future winners of today’s marketplace will be.
Reliance on Projected Future Growth and Market Sentiment
Many tech companies prefer putting profits back into future growth rather than returning them to shareholders in the form of dividends. This kind of approach engenders share valuations directly correlated with the plans of investors regarding future profitability. Hence any upward or downward revisions in growth estimates can lead to considerable movements in share prices. Much of these swings is driven by investor sentiment, influenced by news and perceptions about the market.
Concentration and Sensitivity to Market Influence
This concentration amplifies the extent market moves and industry news impact the volatility of the sector as a whole. New banks loaded up with news that could change the competitive picture or future growth outlook for these cornerstones of the economy can unleash volatile moves on the markets.
You will not hear that there is a technology that gives us an edge, we people are constantly a work in progress. This interplay generates uncertainty regarding the long-term viability of current market frontrunners. Valuation of tech stocks tends to be volatile due to the potential for disruptive and new technology companies to overturn existing business models.
Traders Predicting & The Market Picture
Technology stocks have been driven by speculation, and speculation is rarely stable or predictable. These can activate market sentiment, all the while greed for prospects of growth. Consequently, at times share valuations are set not merely with reference to current income but also to future expectations. A constantly evolving space like Technology, the varying values of stock witnessed can also be justified through investor’s psyche.
Another big factor is the risk of being wrong about the outcome of technological innovations. Unlike more mature industries with known growth trajectories, the technology sector goes through rapid and sometimes seemingly unpredictable innovation. This uncertainty has in common with the current state of technology and business models a fear (or reality) of being ephemeral and unprofitable. You don’t always need a strong challenger to topple a seemingly thriving brand — just a better idea. Since then, the dynamic has created a climate where investor confidence can go into a positive or negative feedback loop, with stock prices swinging widely.
The globalization of the tech market brings its own level of complication as well. Emerging markets and global companies have broad reach and can have established players in their sights; established players are likely to face both headwinds and increased competition. How and what companies will response to such a global competitive pressure will become one of the major factors which drive their success over the long-term on the market. Investors are endlessly assessing competitiveness here and adjusting their portfolios against their models of how well such companies’ prospects for negotiating these headwinds.
