Sorry to sound like a broken record, but tech is hot again today.
And not just any old tech. Money’s pouring into smaller, lesser-known companies as investors seek the magic trio of growth, growth and more growth.
Several themes appear to be converging.
First, innovation continues to bear fruit. Entirely new businesses have emerged in the digital realm. Some provide totally new services, like cyber security, cloud infrastructure or data-mining. Think of VMware (VMW), NetApp (NTAP), Zscaler (ZS), Palo Alto Networks (PANW), Nutanix (NTNX), Splunk (SPLK), or Pivotal Software (PVTL).
Others provide older products and services in a new way: Netflix (NFLX), Amazon.com (AMZN), Tesla Motors (TSLA), GrubHub (GRUB), Etsy (ETSY), Stitch Fix (STCH) and Roku (ROKU).
Then you have in-between companies that do a little of both: Salesforce.com (CRM) helps businesses run better and Dropbox (DBX) lets people manage items that previously went into three-ring notebooks. Square (SQ) facilitates small-business cashiering. DocuSign (DOCU) replaces notaries and Smartsheet (SMAR) is handier than a whiteboard and easel.
There’s also classic stories of disruption and competition, like Twitter (TWTR) seeming to take advertiser market share from Facebook (FB) as we speak.
But more than just that is going on. The strong economy helps companies grow and gives investors the confidence to invest. Today’s retail sales report for May, for example, beat estimates. Initial jobless claims were better than expected and the number of people remaining out of work ground to a 44-year low.
Third, initial public offerings have become huge winners in the last two months. Not only have volumes accelerated, but plenty of companies have surged in their first months of trading: DBX, PVTL, DOCU, ZS.
Fourth, there are “cup and handle” patterns all over the tech space. That’s a classic bullish signal for growth names. Most have already moved but Take-Two Interactive (TTWO) could be in the process of rallying from a cup and handle right now.
Fourth, the tech boom is a trans-Pacific affair as Chinese issues draw huge interest. Click here for more on that.
Fifth, M&A: Merger volume still remains below its peaks from 2015. Adjusted for inflation, bigger economies and higher market caps, it’s also well below the heights from the frenzied years of the late 1990s. But now a judge’s decision to let AT&T (T) buy Time Warner (TWX) is leading to speculation about more deals. That, in turn, would make investors favor smaller companies that could be targets.
Bottom line, this isn’t a trade recommendation and everyone needs to do their own homework. But, you have growth, you have enthusiasm, you have technological innovation … and now you have IPOs and the possibility of more mergers. Is this turning into the 1990s all over again?