As we wrote last week, tech companies are without a doubt the most exciting investment of the 21st century. Technology is rapidly becoming a market layer as opposed to an industry in itself; technology can and must be used across most types of sectors and that list of sectors is growing. Tech is easily distributed and cheap to manufacture which also makes it very scalable; and this contributes to a tech company’s ability to grow rapidly.
But tech stocks over the years have shown a very interesting and surprisingly common pattern that seems unique to the industry. The below share price charts show 7 major tech stocks (software and hardware), that have either existed before mainstream web usage (we’ve set this cut-off as the year 2008) or have held an IPO during mainstream web usage.
All major tech stocks that we looked at went through a similar pattern: rapid growth or a high-priced IPO and then a rapid drop in share value. It seems that investors consistently over anticipate a tech company’s potential to grow and therefore overvalue the stock resulting in a bubble-effect; perhaps this is an inevitable learning curve of a new industry – but judging by this, I would be reluctant to invest in any that hadn’t already suffered a dramatic share price decline.