The technology sector has always been one of quite rapid change and exciting opportunities. Just 10 years ago, in 2004, many people still didn't have a mobile phone and the thought that within just a few years you would be able to use one for surfing the internet, taking photos and paying bills, was beyond most people's comprehension.
That year Google, which was being used quite widely but I don't think had quite become a verb, became a public company in the first big IPO since the dot-com crash. And, on 4th February, Facebook was launched.
Is social media a good investment opportunity?
I spoke to Jeremy Gleeson, manager of the AXA Framlington Global Technology fund, about social media recently. In his opinion, if you regard LinkedIn as a social media platform, it has really been an investable area for quite some time. But its impact on the tech sector has been mixed, with some disastrous IPOs and deals that raised concerns over a second bubble forming.
He said: “While Facebook went public in May 2012, in my opinion, it became investable in early 2013, once the company had delivered several quarters of results which demonstrated they were able to monetise their mobile traffic, and at the same time not damage the experience mobile users received. Seeing revenue growth and subscriber growth concurrently provided a good back-drop for investing, which we duly did in May 2013.
“More recently, Twitter's IPO has proven to be a success, indicating demand for social media is back from an investment perspective. The high profile of both these companies should have helped encouraged investors look at the technology sector again, if they hadn't already been doing so.”
Colin Moar, Technology fund manager at Polar Capital believes social media has become more attractive in the last 9 months, particularly in terms of advertising. He gave me the example of Facebook's 'Cost per Click' growth and Ad Load increase, which between Q2 and Q3 last year, were huge. They were the sign the 'bulls' had been waiting for to prove the case for social media.
Colin said: “The last bastion of off-line advertising is TV. Recent trends show TV advertising is still growing, but with the rapid growth of YouTube, Twitter's Vine and possibly an imminent revamp of Facebook's video ads the next stage for social media could be to take a considerable chunk of advertising spend away from television too.”
Technology spans all sectors
However, the scope of technology is far-reaching. It's not all just about the internet and social media. It spans almost every other sector from the retail space to education to healthcare. Google, which most people use as a search engine, has just announced that it is testing a "smart contact lens" that can help measure glucose levels in tears. The things we can do with technology are forever increasing. This means the sector is very diverse and while one area may be struggling as economic woes cause companies to cut IT spend, others will do well because of austerity and the efficiencies they offer.
But perhaps because so many people got caught up in the dot-com boom and bust, the sector is still very much unloved, despite having posted very good performance over the decade.
Currently, valuations for the sector are looking attractive, both vs their own history and vs other sectors. The US tech sector is currently as cheap as it has been, compared with the S&P 500 since 1995. And globally, IT is the cheapest sector vs its own 15 year average.
To me, the technology is quite a compelling story. If there is one thing I have learned over the years, it is that you have more chance of making money over the long-term if the investment is cheap rather than expensive.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius' views are his own and do not constitute financial advice.