Published and Updated March 30, 2021 by The Motley Fool Staff
Lightspeed POS. Dye & Durham. Shopify.
Lately, Canada’s tech companies have been enjoying immense growth, spurred, no doubt, by the pandemic-induced need for more cloud-based applications.
The growth of these big tech companies, along with several small start-ups, have led many Canadian investors to consider adding tech stocks to their portfolio. But what are the risks investing in tech stocks? And how can Canadians get started? Let’s take a closer at tech stocks and find out.
What Are Tech Stocks?
Tech stocks are shares in companies whose products or services are immersed in technology. These tech companies are overwhelmingly vast, ranging from start-ups to mature brands, from software developers to streaming services, from gadget makers to cybersecurity companies.
Typically, tech stocks promise to continuously deliver exciting and potentially market-disrupting products and services that help the company attain a dominant position in their space. For investors who employ a growth strategy, tech stocks could generate above-average revenues that become, over the long run, immense gains.
Types of Tech Stocks
With tech stocks, there’s no shortage of options. The types of tech stocks are ever-growing, and many tech companies don’t fall neatly into one category. But to help you map out the tech market, here are some emerging segments you should be familiar with.
Artificial Intelligence (AI)
Aside from being science fiction’s favorite villain, artificial intelligence (AI) automates processes and tasks that normally require human intelligence, such as crunching large numbers and interpreting massive amounts of data. Artificial intelligence also includes machine learning (training computers to use past data to draw conclusions about new data) and deep learning (computers modeled after the function and structure of the human brain).
Though AI has been around since the 1950’s, we’ve only scratched the surface of what we can do with it, giving the AI space lots of room to grow.
Blockchain is a digital ledger that logs transactions without the need of a third-party, such as a bank. While originally designed as a solution for making bitcoin transactions, blockchain technology has numerous applications—many still being developed—such as peer-to-peer money transfers, digital health records, and even voting.
Cybersecurity protects our computers and networks from unauthorized access to data and information. As more governments, banks, hospitals, businesses, and people store important data on devices and in the cloud, the threat of these breaches has never been more serious (and expensive). Because of that, the cybersecurity industry is constantly evolving, as companies race to create the most unbreachable softwares.
Internet of Things
You change the temperature with your phone. Monitor your blood pressure with your watch. Change the channel, dim the lights, and turn on music with a universal remote. Yes—the Internet of Things has already infiltrated our everyday lives. With more products on the horizon, it’s an industry that’ll be growing for a long time.
Semiconductor companies make the fundamental part in all computers, phones, and other electrical devices—computer chips. Without computer chips, other technological companies couldn’t operate, making the semiconductor industry a viable one for the foreseeable future.
If you want to learn more about semiconductors, check out our guide investing in 5G stocks.
A few decades ago you’d be old-fashioned if you didn’t have some form of cable. Nowadays, you’re old-fashioned if you do. Streaming services have pretty much made cable obsolete, and after showing immense growth during the pandemic, these companies are gearing up for a strong future.
What Are Some Dependable Canadian Tech Stocks?
Lookout America—Canadian tech companies are hot right now. With a growing workforce of young IT professionals, not to mention several industrial-leading companies, Canada’s tech sector has a promising future. Here are four tech companies you’ll want to keep your eye on.
1. Shopify (TSX:SHOP)
Shopify helps businesses and retailers build online stores, as well as help them manage inventory, payment options, and shipping. During the pandemic, when lockdowns prevented small businesses from operating in person, Shopify’s revenues took off, as brick-and-mortar businesses began migrating to online stores. Today, it’s emerged as a key player in a highly competitive space—e-commerce—becoming a rival even to Amazon.
2. Dye & Durham (TSX:DND)
Dye & Durham helps governments, financial firms, legal institutions, and other business professionals, research public records through its cloud-based software. They’ve been aggressively expanding, making 19 acquisitions since 2013, and with a strong demand for their products, Dye & Durham projects strong growth in the long-term.
3. Docebo (TSX:DCBO)
Another pandemic favorite, Docebo (Latin for “I will teach”) helps employers train employees from a distance with highly sophisticated dashboards and instructor-led courses. Their cloud-based e-learning platform is in high demand right now, and given that they have some massive clients (Amazon and Walmart, just to name a few) there’s no telling how much growth this company will see in years to come.
4. Lightspeed POS (TSX:LSPD)
Indicative of its name, Lightspeed POS is one of the fastest growing tech stocks in the TSX. Lightspeed POS sells point-of-sale and e-commerce software to retail stores, restaurants, and golf courses. After making some big acquisitions this year, not to mention experiencing 600% growth since the pandemic hit Canada last March, Lightspeed POS has tremendous growth potential.
What Are The Risks of Tech Stocks?
Tech stocks can be exciting—profitable even—but they’re not without their risks. Anyone who lived through the dot-com burst of 2000 knows well enough that a crash in the tech industry can burn quickly through your investment gains. Before you invest in tech stocks, consider these investing risks:
1. The technology can be hard to understand
We always hear, “don’t invest in something you don’t understand.” Well, with tech stocks, that can be difficult, if not downright impossible, especially when companies are producing technology that no one has seen before.
Although you don’t have to know the intricacies of, say, blockchain, to invest in one of these companies, you should, at the very least, know what unique value a company brings to its industry. Knowing why the product or service is competitive, as well as why the company itself can withstand its competitors, will go a long way in helping you choose the right tech stocks.
2. Tech companies can become obsolete
Tech companies are known for coming on the scene and disrupting everything with a single product or service. But what most investors fail to realize is that it’s just as easy for those disruptors to become disruptees. If your tech company loses authority in the market, their stocks can easily lose value, causing your investment gains to disappear.
3. Tech companies may fail to deliver their promises
Unless you’re investing in a well-established brand, like Shopify or Amazon, you’re essentially betting that a promising tech company will deliver a successful product or service that will drive its revenues up. If they fail to live up to the hype, you could be in for a disappointing surprise.
How Can Canadians Start Investing in Tech Stocks?
Technology stocks can provide some exciting (and profitable) opportunities for experienced and beginning investors alike. If you’re new to tech stocks, you can get your feet wet by doing the following.
1. Look at Canada’s finest tech companies
You don’t have to choose the next Shopify or Amazon to benefit from immense gains. You can start by looking at well-established tech companies. Any of the four tech stocks listed above would be a good place to start, especially if you can manage to buy shares during a dip.
2. Check out tech stock ETFs
An exchange-traded fund (ETF) is a diversified basket of investments (in this case, tech stocks) that you can buy or sell during market hours. Buying a tech ETF can help you buy shares in numerous tech companies, some of which you would’ve bought otherwise. A good tech ETF in Canada is the iShares S&P/TSX Info Tech ETF, which is one of North America’s top-performing indexes.
3. Consider tech stocks in foreign markets
Though Canada has enough booming tech companies to keep even the most aggressive growth investors buy, it doesn’t hurt to analyze tech stocks in foreign markets. That doesn’t mean you have to go south of the border to the United States, either. Plenty of other foreign companies and startups have innovated new solutions to meet the demands of a rising middle class, countries like India, China, and Brazil.
Speaking of investing in Shopify…
One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting…
Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago – before it skyrocketed by 1,211%!
Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!