When Tech Is Everywhere, What Exactly Is a Tech Company?

Markets Motley Fool

In this clip from Motley Fool Answers, the team questions the supposedly obvious: What is a tech company? And are they wise places to invest your money?

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A full transcript follows the video.

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This video was recorded on June 27, 2017.

Alison Southwick: What is the tech sector comprised of, because I feel like in this day and age, every company is a tech company.

Robert Brokamp: Everything is a tech.

Dylan Lewis: Well, a lot of companies are trying to position themselves as tech companies, and part of that is the valuation that tech companies command, because a lot of their businesses are so scalable it tends to be a lot higher than your conventional bricks-and-mortar business-type valuation.

But the tech sector really touches a lot of different things. You have platform companies. Software-as-a-service businesses. Social-media companies. And then you can look over to the consumer-device side of things, where you have what you'd actually buy. They're companies that manufacture things like televisions, or Fitbits, or something like that.

Then you have all the component companies that go into those devices, and so there are kind of businesses within businesses on the manufacturing side, on the semiconductor side. Which is to say that there are times where the tech sector can be very inaccessible.

I think that's one of the joys of doing the Industry Focus show, actually, is being able to spend 15 or 20 minutes explaining what these companies do and giving people a better sense just beyond the name and what's going on with the stock price.

Southwick: And so why should someone have exposure to this tech sector if it's so complicated and crazy? And probably pretty volatile and risky, too, I imagine, to some extent if they're these hot little tech stocks.

Lewis: Yeah, it is. I will say that a lot of the big gains in the market have been driven by tech stocks. You'll commonly hear the acronym FANG, which is Facebook, Amazon, Netflix, and Google. And those stocks have performed incredibly well, as have a lot of other big tech names, so they're driving a lot of the market's results. You think of tech as a growth market, and it is. Obviously in a large bull market like we've been in for the last couple of years, those companies have done very well.

So you obviously want to be diversified and have some more conservative plays, but tech can offer your portfolio some really awesome growth opportunities.

Alison Southwick has no position in any of the stocks mentioned. Dylan Lewis owns shares of Amazon, and Facebook. Robert Brokamp, CFP owns shares of Facebook. The Motley Fool owns shares of and recommends Amazon, Facebook, and Netflix. The Motley Fool has a disclosure policy.