The technology sector is an inescapably huge investment opportunity for both the corporate world and financial markets. It is the largest single segment of the market, eclipsing all others (including the financial and the industrial sector). More than anything, technology companies are associated with innovation and invention. Investors expect considerable expenditures on research and development by technology companies, but also a steady stream of growth fueled by a pipeline of innovative new products, services, and features.
Why the Tech Industry Is Important
These products and services are then disseminated throughout the economy. There is no sector of the modern economy that technology does not touch and that does not rely upon the technology sector to improve quality, productivity, and/or profitability.
Tech is also notable for its rabid competition and rapid obsolescence cycles. These examples have been used so often they have become cliché, it is nevertheless still a fact that computers used to occupy entire rooms, 16 GB of hard drive storage was perfectly adequate for a tablet, and mobile phones only handled calls and basic texting. With that constant drive to adapt and overcome competitors with new products, no company can rest easy for long in the tech sector.
This rapid cycle of obsolescence means that winners and losers in technology do not necessarily maintain those positions for long. Microsoft was founded in 1975 and after dominating in software for computers, has had to play catch up in the mobile space. Likewise, Apple was left for dead in the 1990s but sprang back to life with its innovative smartphone products. Moreover, that dynamism and impressive growth make technology a must-consider sector for virtually every equity investor.
Within the huge and unwieldy world of tech, it is possible to look at four key “mega sectors:” semiconductors, software, networking, and hardware. While not every tech company fits into one of these four mega sectors, the majority do, and it is a useful way to talk about the sector as a whole.
Technology Sector in the UK
- UK tech VC (venture capital) investment is third in the world, hitting a record high of $15 billion in 2020 despite covid challenges.
- UK deep tech investment rose by 17% in 2020, the highest rate of growth globally.
- 63% of investments into UK tech came from overseas in 2020 up from 50% in 2016.
- The UK is third in the world for investing in ‘impact tech’, which has increased 160% since 2018 compared to just 15% in the US.
- The UK tech start-up and scale-up ecosystem are valued at $585 billion – 120% more than 2017 and more than double the next most valuable ecosystem, Germany, at $291 billion.
- The rate of tech GVA (gross added value) contribution to the UK economy has grown on average 7% per year since 2016.
- Last year a record £29.4 billion was invested in the UK’s tech sector, more than double the previous year.
- Overall UK tech job vacancies advertised increased by 50% in 2021. Tech vacancies make up 12% of all available jobs in the UK.
Trends to watch for 2022
- Move to a public cloud-first strategy
- AI-driven automation & autonomous services
- Better cybersecurity to support a new way of working
- Increased use of data science factories
- Sustainability and decarbonization
- Tech to support hybrid work
- Musical chairs in the Great Resignation
- Digital supply chain transformation
Tech in the spotlight
Edge computing – Fast becoming seen as a key technology and enabler of widescale innovation. Accelerating innovation in key industries, and accelerating adoption on complementing emerging technologies.
Quantum – Quantum computing has been identified as a key emerging and transformative tech that will have an impact on the UK’s long-term digital and economic future. In the coming years, there’s potential to enable smart cities, revolutionize health care systems, and drive innovation in key industries.
Augmented/VR – Adoption of immersive tech will be a crucial tool for business innovation, driving tangible benefits and clear ROI, including mitigating high-risk, high-cost training through VR, building digital twins, and exploring the future of an augmented reality workforce.
Intelligent automation – Intelligent automation has the capacity to revolutionize business services across a variety of industries through driving optimization, enhancing digitization, and building resilience.
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