Why the information technology sector is booming
The IT sector has been growing strongly for a long time, but serious fears of overheating arose during the pandemic, when investors in a desire to preserve capital moved from the commercial real estate market to the IT segment. Despite the speed at which new technologies and solutions are emerging and being used across industries, there is a risk that investors’ expectations may not be met. Experts have analysed the IT market to identify potential risks.
The virtual economy now accounts for more than 80% and is expressed in the form of intangible assets, including software, financial instruments and technology. Funds that are in the digital world are multiplying and rotating in the digital world, but they are not being moved into the industrial segment. Compounding the situation is the speed of circulation of standard money, which has fallen to lows. However, the S&P 500 Index is rising in line with increased liquidity, and even IT giants such as Google, Facebook, Apple and Amazon are not having a dramatic effect on its movement.
To improve performance, a number of funds are following the idea of allocating funds from their growth stocks to value stocks. The fact is that investors’ interests are changing with the progress. Young market players are no longer interested in stock exchange pillars such as Exxon or Chevron, they are focused on technology issuers FAANG or Tesla Corporation.
Growth stocks are made up largely of the assets of IT companies that are acting to boost revenues and expand their market position. More often than not, the sector refuses to pay dividends but is not shy about borrowing money. Unlike growth stocks, value papers more often signify a stable business that has already gone through all stages of development and is not burdened by a large debt burden.
The behavioural pattern of households is also an important consideration. Monetary policy in many countries has changed in order to support the economy and the population has received a stable income. However, people are in no hurry to spend money, as evidenced by data from Moody’s Analytics. According to its research, the amount of savings of US households, which can be regarded as a surplus, is about 5 trillion dollars – this is 7% of GDP. And in just six months the figure was at $1.5 trillion. Although this figure is reflected in consumer activity, it is not a sign of real economic improvement.
Taken together, these factors, combined with increased activity in the IT segment, may lead to a market that cannot cope with such intensive dynamics, and a crisis awaits. Therefore, it is not worth investing only in IT; other segments need to be supported as well, so that market development is balanced.
