Tech IS our future.
I keep seeing people comparing the Nasdaq run-up to the Tech Bubble in the 00’s.
So why is this different? I’ll make some points below:
1) In the years leading up to the crash the growth of the Nasdaq was substantially higher than today.
1998 - +85%
1999 - +102%
2000 - -36.8%
2018 - -1%
2019 - +43%
2020 - +39%
2) Tech is different today. I know everyone says ‘it’s different this time’ but I genuinely believe this is true. If we look back at 2000 and look at our lives (if you’re old enough!) tech was present but nowhere near the scale it is today. Back in the early 00’s companies were changing their names to include .com just to join the gold rush. This time round Tech actually makes a difference. If we look at the big names $GOOG, $AMZN, $AAPL, $FB and look at how they influence our daily lives. How many times a day do you use google search or pick up your phone? Who uses WhatsApp or Instagram? Who orders on Amazon for same-day delivery? These companies have a massive impact on our daily lives and will not disappear overnight.
3) Scalability. Tech can grow far quicker than a brick and mortar business with a lot lower overheads and a lot less staff, this increases margins and can grow exponentially. I’m not saying ignore high gearing or astronomical PE ratios but we need to look deeper than one ratio!
4) The new generation is far more willing to embrace technology. If I ask my dad to set up Alexa I know I’ll have to go to his house and set it up. His generation did not grow up with technology in hand like we do today. Kids grow up with iPads from a young age, they are used to on-demand TV like Netflix. They embrace and engage with tech every single day, their lives are built around it now. I’ve already told my 7-year-old he probably won’t even need a driving licence when he is older!
5) Tech is growing exponentially, it now makes up 40% of the stock market! If we look at how far mobile phones have come in 20 years it’s unbelievable. I was using a Nokia 3210 back then. Now I have a Samsung Fold 2! The glass folds! Who would have believed driverless cars would be a thing in 2020? Google have their cars driving around California, Tesla are also leading the way in self-driving machines. SpaceX are reusing rockets, AI is getting to a point where we won’t know if we are speaking to a human or a computer. Now imagine this technology in another 20 years….
6) We need tech to power the tech. This comes from companies like $INTC, $NVDA and $AMD. This is a market dominated by very few companies. We then need companies who help at the design stage for the chips and this involves companies like $AVGO, $SNPS, $ASML - again, these are market-dominant companies with wide moats and high barriers to entry.
If we believe tech will continue to shape our lives, then we have to believe it will continue to grow. Now, I don’t apply this logic to every ‘tech’ company. Companies like $SNAP and Tiktok will come and go and competition will grow for companies like $TSLA but in my opinion, the core companies that already influence our lives will continue to do so for the foreseeable.
I also believe investing in the underlying chip makes and processor designers is key in having a ‘future proof’ portfolio.
For me personally, tech IS our future, and to deny that based on the historical performance of an index is blindly following history with no context.
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