How to Invest in Technology Stock | KLSE Stock Series

The IT industry is an inescapably big investment potential for both corporate America and Wall Street. It is the biggest single section of the market, exceeding all others (including the financial industry and the industrials sector) (including the financial sector and the industrials sector). More than anything, technology corporations are connected with creativity and inventiveness. Investors anticipate large spending on research and development by technology businesses, but also a consistent stream of growth fueled by a pipeline of inventive new products, services, and features.

Similarly, Malaysia offers various opportunities to invest in the technology as well.

Why the Tech Industry Is Important

​These items and services are subsequently spread throughout the economy. There is no area of the contemporary economy that technology does not affect and that does not depend upon the technology sector to increase quality, productivity, and/or profitability.

Tech is also famous for its aggressive competitiveness and fast obsolescence cycles. Although the examples have been repeated so frequently they have become cliché, it is nonetheless still a truth that computers used to fill whole rooms, 16 GB of hard drive capacity was completely plenty for a tablet, and mobile phones used to flip open and closed. With that ongoing desire to adapt and defeat competition with new goods, no firm can rest easy for long in the tech industry.

This quick cycle of obsolescence implies that winners and losers in technology do not necessarily keep their positions for long. Microsoft was created in 1975 and despite dominating in software for PCs, has had to play catch up in the mobile market.

Likewise, Apple was left for dead in the 1990s but sprung back to life with its new smartphone devices. Moreover, such vitality and outstanding growth make technology a must-consider industry for practically any stock investor.

​Within the large and cumbersome world of tech, it is feasible to look at four important "mega sectors:" semiconductors, software, networking, and hardware. While not every IT business falls into one of these four mega sectors, the majority do, and it is a good approach to speak about the industry as a whole.

Software

​Without software, nothing much occurs in the contemporary world. Software is omnipresent and is included in crucial components of everything from pacemakers to autos, yet none of those technologies can perform much of anything without software. As such, it is not unexpected that software is a massive sector as well - on the scale of hundreds of billions.

Software is not obviously cyclical in its own right, aside from the wider economic cycles that dominate industry. When recessions strike, organizations often cut their information technology (IT) spending and decrease software purchases. Meanwhile, the converse is true when recoveries begin.

The programme needs very minimal infrastructure and is difficult to protect through patents or copyright to any meaningful degree. Consequently, modest start-ups with revolutionary new goods might develop essentially overnight and with little notice. Though a software provider's reputation and ability to give assistance after the sale are competitive criteria and possible hurdles, this is nonetheless one of the most fertile sectors for new business development and new product releases.

Cloud computing, for example, enables numerous organizations to sell software as an on-demand application (usually over the internet or a closed network) as opposed to code actually sitting on an individual customer's servers and hard drives. This "software as a service" has huge consequences for the creation, distribution, and functioning of a multi-hundred-billion-dollar sector between software suppliers and the end-user.

Networking and Internet

​Networking, huge and tiny, is possibly the largest tech invention since the microprocessor. The establishment of networks has not only dramatically increased efficiency inside firms, but the internet itself (one giant network) has permitted major changes to commerce and has backed totally new business models like mobile banking and software as a service (SaaS) (SaaS). Networking is in many senses a sub-sector of the other mega-sectors; it needs hardware (which requires chips) and software to operate. That said, it is vast enough and essential enough to stand on its own.

Broadly speaking, investors may split their attention between those firms concentrating on the customer (B2C, business-to-consumer) and those that concentrate on "behind the scenes" commerce performed between businesses (B2B, business-to-business) (B2B, business-to-business). In many situations, however, corporations like Amazon, Meta (previously Facebook), and Google blur such barriers.

For the second quarter of 2022, U.S. retail e-commerce alone was predicted to be worth $257.3 billion a year in sales, and that did not include the value from electronic funds transfer, marketing, data interchange, or online supply chain management.

Hardware

​Hardware does not garner the same degree of attention that it had in earlier decades, but it is still an important aspect of the technological industry. Although the software is progressively copying the operations of many pieces of hardware, there is still a big market for many sorts of hardware and the industry is not as defunct as many imagine. Company-wide networks and the internet itself only exist because of a massive backbone of equipment, and software is still ultimately simply a collection of instructions; there needs to be a "something" to be taught and to carry out those instructions.

Computers have grown into a breathtaking variety of gadgets from self-driving automobiles to mobile devices that can virtually copy and replace many of the operations of personal computers. New fascinating goods, such as virtual reality headsets and wearables may transform consumer hardware, while the intensive user needs for information technology can stimulate continued innovation in routers, servers, and data storage devices.

Getting a little more detailed, hardware may be divided down into various sub-sectors, including communications equipment, computers and peripherals, networking equipment, technical instruments, and consumer electronics. Unfortunately, investors may find some of these categories to be arbitrary or incomplete; do modern electronic defensive systems fit in the conventional aerospace/defense group, or are they technological hardware? Consequently, investors should not depend too much on labels when selecting what is or is not to be termed "hardware."

Semiconductors

​Semiconductors underpin practically everything else in technology. The semiconductor business is a massive market on its own, but it is considered to enable four times more in physical items that depend upon those chips. Factor in all of the various sorts of devices and services that rely upon semiconductors at least indirectly (what could software accomplish without a chip-using drone or smartwatch?), and it is arguably the axis around which technology turns.

There are several kinds and classifications of semiconductors. Chips may be separated into analogue, digital and mixed-signal circuits, but it is more typical to describe chips in terms of their final purpose – such power management, microprocessors, microcontrollers, sensors, and amplifiers.

Although semiconductors are ubiquitous, the industry is highly-cyclical and follows a boom-bust cycle of ordering and capacity building. Despite such cyclicality, what counts most for firms in the semiconductor sector is the capacity to build better products (more features per chip, less power consumption, greater dependability, etc.) at the lowest pricing.

What Investors Should Watch for the Technology Sector

One of the other fundamental realities of equities is that tech companies usually flaunt greater premiums than practically any other market sector. In principle, this high level of value is the acknowledgement of the above-average growth rates that successful technological businesses produce. In fact, however, even failing firms may sustain solid values right up to the moment that the market loses up on their growth expectations.

Technology also has an above-average proportion of public firms that do not yet earn profits or cash flow. The lack of a track record leads investors to employ greater guesswork when creating discounted cash flow value models.

Investors might take some encouragement that study and effort pay dividends in the IT industry. Understanding a company's goods (particularly their benefits and weaknesses) and those of its competitors might provide an investable edge. Clearly, this is a sector where the details count.

Whether or whether investors should concern themselves with values in the tech industry is a matter of continuing discussion. Certainly, there are investors who have done well by tracking the growth and investing in category leaders (or developing challengers to the status quo) and nimbly jumping from business to company irrespective of value. On the other side, investors who are not so agile, as they think or underestimate the competition, find themselves owning highly expensive companies with no basis of value to sustain them.

How to Invest in Technology Stock in Malaysia

Screening some of the biggest technology companies in Malaysia in the table below.

I also filter with some criteria:

1. Companies that are having a minimum of RM 1 billion.

2. Board = Only Main Market

3. Year on Year Net Profit is positive

4. Year on Year Revenue is positive

5. Continuous Profitable for at least 1 year

Name	Code	Price (RM)	PE	PTBV	Market Cap.(Mil)
HONGSENG	41	0.395	14.74	5.38	2017.82
DNEX	4456	0.81	4.65	1.37	2556.63
UWC	5292	4.1	42.22	11.39	4515.6
VITROX	97	7.43	37	8.97	7018.71
FRONTKN	128	2.73	37.33	8.27	4313.82
MYEG	138	0.825	18.39	3.56	6112.11
INARI	166	2.68	25.46	3.97	9951.12
MPI	3867	29.1	18.57	2.89	6107.64
UNISEM	5005	2.61	11.88	1.76	4210.14
PENTA	7160	4.05	36.65	4.95	2884.88
D&O	7204	4.1	49.21	6.38	5072.61
DSONIC	5216	0.475	50.39	3.93	1406.95
MI	5286	1.26	17.81	1.1	1134

You can observe that most of the PE of the tech companies above are not low.

Some are even having PE up to 50.39.

Mostly are selling at a premium.

Similarly, the PTBV (Price to Book Value) is also not low.

Mostly are having PBTV of more than 2.

UWC is having a PTBV at 11.39.

While technology stocks offers opportunities for growth, we also do not want to overpay the stock.

Remember to only buy during undervalue. 

In Conclusion

Some investors continue to keep far clear of the whole technology area and see it as opaque and irrational. Given the pervasiveness of technology, however, this is a severely self-limiting approach that cuts off one of the most dynamic and powerful engines of contemporary economy. A better compromise, therefore, could be to simply spend the time in diligent study and self-education to buy where the prices make sense.

Happy Investing! 😉