US Technology Sector – Is it really Overvalued!

16^th July 2018 - Monday

US Technology Sector – Is it really Overvalued!

Though there have been some recent corporate governance instances, investors clearly are showing that they have a strong hold to the technology sector, we just tried to analyse why?

The US is undoubtedly the leader leading global stock markets so far, not because of the performance of all the industries however for a few top-notch stocks that over powered the technology sector and without the additions of Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOGL) the S&P500 would have definitely shown a negative trend. The share prices of these companies grew over 30-40% in the better part of 2018.

Due to the ongoing shift towards the cloud computing technology most companies in this sector have gained. With Amazon’s Web Services, Microsoft Azure & Google; most start-up’s and even enterprises are outsourcing their workloads to IaaS, infrastructure-as-a-service options offered by these companies, which in turn reduces the otherwise high fixed costs implied for running IT hardware and software on their own premises.

On the other hand, these giants that offer IaaS and software-as-a-service obviously get tremendous growth opportunities. The likes of Adobe & Microsoft that have transitioned to offering subscription accesses to prospects rather than working on the traditional licensing formats, this has helped them expand their customer base big-time.

Over the past quarter, the most moving news in the tech sec have been the Facebook’s Founder Mark Zuckerberg, who was made to testify before the Congress when Cambridge Analytica gained access to data of a reported 87 million FB users. The General Data Protection Act (GDPR) has thus become an important clearance Europe recently passed, which strives to standardize data capture, privacy, and distribution requirements for businesses as well as set guidelines to enable citizens to better understand their rights associated with user data.

On the M&A news front, which generally create notable trends in the technology sector, we witnessed 2 important deal announcements. One being Adobe's bid to enter into commerce by acquiring Magento and second one which Microsoft's valued its developer community Github at $7.5 billion.

Moving on with a positive outlook more such software deals are to be seen in years to follow by leading companies such as Adobe, Microsoft, Oracle, Workday etc., which will further boost their capabilities of entering new product lines and cease opportunities thus generating positive trends going forward. Companies like Cisco, Amazon who were until late know for non-traditional software vendors are also trying to make their way by entering into software-related deals, as software comes to be an important portion of their service offerings.

Overall the ability of these companies to hook on to their customers via their ever increasing and very niche offerings emerge to be creating an ever-lasting customer base which can be further exploited for more revenue generations in time to come, this make us feel that technology sector is and technology companies can be the New Tobacco for the masses.

Disclaimer

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