Investing in the Tech Sector: A beginner’s guide
Editorial staff, J.P. Morgan Wealth Management
- Technology encompasses many areas of the economy, from artificial intelligence (AI) to cloud computing.
- There are several ways to get exposure to tech in your investment portfolio, such as individual stocks, exchange-traded funds (ETFs) and mutual funds.
- Not every tech stock has high growth potential. Just like with any investment, investors need to be discerning when choosing what to invest in to decide if it’s a fit for their portfolio.
From shifting how we communicate to how we work and even to how we date, technology has increasingly played an integral role in our lives. It has also been a dominant driver of the U.S. stock market in recent decades, from the dotcom boom to the AI revolution.,
The technology sector is vast, encompassing companies focused on electronics, software, computers, information technology, AI and many other digital disciplines. For investors interested in getting exposure to the technology sector, opportunities abound.
In this article we will cover the different sectors within tech to consider investing in and the different investment vehicles if you’re interested in investing in tech. Keep reading to learn more.
What are the different industries within tech to consider investing in?
When it comes to technology, investors can choose to invest in many different industries. There are tech industries focused solely on the environment and ones that have an e-commerce bent. Moreover, some tech companies encompass a wide range of functions, providing services to individuals, companies and even governments.
The amount of money you have to invest, your risk tolerance and growth expectations all play a role in deciding which areas of the tech sector may be right for you to invest in. Here’s a look at some of the big categories that technology stocks fall into.
AI
AI is a fast-growing segment of the technology sector. AI has permeated many areas of the economy including:
- Research and development: Companies focused on advancing the underlying technologies that make AI a reality.
- Software and platforms: AI can’t be deployed on its own – at least not yet. It requires integration, and these companies develop the software and platforms necessary for the deployment and management of various AI tools.
- Hardware and devices: From graphics processing units (GPUs) to AI accelerators, these companies focus on developing the necessary hardware and devices.
- Applications and services: AI needs use cases, and that’s where these companies come in. They are developing apps and services such as chatbots that leverage AI.
When thinking about this sector, J.P. Morgan Wealth Management’s 2025 Mid-Year Outlook put it like this: “We feel confident that AI will catalyze substantial productivity gains for businesses, consumers and the economy as a whole. Large language models can now deliver PhD-level outputs, while their costs have declined by between 80% and 99%. Further, users are increasingly able to optimize their mixes of cost and performance. Economic history is replete with examples of technologies that enabled adoption after costs declined dramatically (e.g., the Bessemer process of mass producing steel from molten iron, air travel, personal computers and semiconductors, mobile phones).”
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Climate tech
Many climate tech companies aim to foster a greener and cleaner future including removing carbon dioxide from air and adapting to climate change. These companies may focus on the following areas (among others):
- Reduction of greenhouse gas emissions: This involves finding cleaner ways to power homes, drive cars and capture carbon dioxide emissions. Some are developing renewable energies, such as solar, wind, hydro or geothermal. Others create storage to capture green energy or develop electric vehicles.
- Adapting to climate change: More extreme weather necessitates future-proofing communities, which is where climate tech companies can play a role. They design and build infrastructure that can withstand climate change, develop tools to understand and predict future climate impacts, and work on technologies to mitigate the impact of droughts and floods. They are also applying technology to make crops more resilient to a changing environment.
Cloud computing
Companies no longer have to house their computers, hardware and software on-site. Instead, they can utilize cloud computing over the internet, offering cost and security benefits. Companies that enable businesses to move everything off-site are known as cloud computing providers.
Cloud computing companies may operate huge data centers, provide software-as-a-service and enable everything from AI to data analytics. Some of the services they provide include the following:
- Infrastructure-as-a-service: Providers offer computing power, operating systems and storage on a pay-as-you-go basis.
- Software-as-a-service: These companies deliver software to companies over the internet. Instead of having to buy physical software, companies pay a monthly subscription fee to access it online.
- Platform-as-a-service: Companies who want to develop and run a platform can use this to minimize the outlay and work of managing and maintaining the required infrastructure.
Cybersecurity
Cybersecurity companies safeguard computer systems and mobile devices for consumers, corporations and government agencies.
Cybersecurity can encompass a lot, including the following:
- Application security: Aims to identify and fix software issues so that cyber criminals and hackers can’t access code.
- Network security: Safeguards individuals' or companies' networks to prevent bad actors from infiltrating their systems.
- Critical infrastructure security: Works to protect critical infrastructure, such as airports, bridges and roadways, power plants and hospitals.
- Endpoint security: Protects devices such as mobile phones, computers and servers from hackers.
E-commerce
E-commerce involves buying or selling goods and services online. There are a host of internet retailers that sell everything from name brands to niche items.
E-commerce businesses are often categorized according to who is selling to whom. For example:
- Business-to-consumer: E-commerce companies that sell products to consumers.
- Business-to-businesses: Companies that only sell products to other businesses.
- Consumer-to-consumer: E-commerce platforms where consumers can reach a shared community of shoppers.
Startup tech companies
These companies span various sectors and are in the early stages of developing tech-focused products or services. Tech startups frequently disrupt existing industries or create new ones through technology. They likely haven’t established themselves yet and aren’t typically traded on the public markets.
Startups may be funded by venture capital, private equity firms, angel investors or boot-strapped by the founders.
What are the different investment vehicles available if you’re interested in investing in tech?
If you're seeking exposure to tech companies in your portfolio, there are several approaches to consider, including investing in individual tech stocks. Another approach could be to consider tech-focused ETFs, which we’ll cover in more detail below.
Tech stocks
Most tech stocks trade on the Nasdaq, with some listed on the New York Stock Exchange (NYSE) or traded over-the-counter (OTC), and can be purchased through a brokerage account.
The “Magnificent 7” – a group of leading technology companies that includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – currently dominates the market, but there are a vast number of public and private technology companies to consider if you’re interested in individual stocks.
As with any investment, it’s important to do your research and fully understand the company’s fundamentals and where it may fit into your portfolio. You’ll want to consider your risk tolerance to know how much weight you want to give to stocks, too.
Mature vs. growth tech stocks
Tech stocks generally fall into two categories: growth companies and mature companies. A growth company is one that is expected to grow at a rate that is faster in comparison to other companies in the market. Growth tech companies are often innovating, experiencing high demand and growing rapidly. These companies typically reinvest their earnings into the business to expand operations, develop new products or enter new markets, rather than paying dividends to shareholders.
A mature tech company is one that has gone through the growth phase and therefore may be experiencing slowing growth. These companies tend to have an established market presence, stable revenue growth and profitability. Mature tech stocks may offer dividends, providing a steady income stream alongside potential appreciation.
Tech ETFs and mutual funds
Not all investors prefer picking individual stocks. Exchange-traded funds (ETFs) and mutual funds offer baskets of stocks, providing diverse company exposure.
Some technology sector ETFs or mutual funds can give broad exposure to a number of key companies in the industry. Other funds focus on specific tech industries such as the ones discussed above. Index funds that track the Nasdaq offer another way to invest in tech with broad exposure.
Be mindful of fees associated with these options, which can affect overall returns.
Tech angel investing
Angel investing can provide certain investors a way to invest in startup tech companies. Angel investors invest capital at the early stages of a company’s development with the goal of realizing gains if a business takes off. While it can carry significant risks, angel investing also offers the potential for high returns.
To find angel investing opportunities, investors might attend industry events or use investment platforms that allow for the discovery of promising startups. These platforms act as a middleman, connecting angel investors with startups looking to raise capital.
Individual tech stocks | Tech-focused ETFs | Tech-focused mutual funds | Tech angel investing |
|---|---|---|---|
Description | |||
Direct investment in specific tech companies | Baskets of tech stocks traded on exchanges | Professionally managed portfolios of tech stocks | Early-stage investment in tech startups |
Pros | |||
Potential for high returns; direct ownership | May provide diversification; professional management; may have lower fees compared to mutual funds | May provide diversification; professional management | Potential for high returns; opportunity to support innovation |
Cons | |||
Can require extensive research; can come with higher risk | Limited control over individual stock selection | Limited control over individual stock selection; and compared to ETFs, higher fees and less flexibility (end-of-day pricing, limited strategies, etc.) | High risk; may require lengthy time commitment to realize return |
The bottom line
Technology companies have significantly influenced the way we live, and this trend is likely to continue. That said, not every tech stock will achieve the same level of success.
There are many successful companies in this high-growth sector of the market, but tech stocks can be volatile and not every company will succeed. After all, just because it's a tech stock doesn’t guarantee it will end up at the upper echelons of this important sector.
Understand a tech company’s financials, projections, opportunities and valuation before investing, or opt for a potentially less risky option, like investing in an ETF with a diversified portfolio of tech stocks.
Frequently asked questions about investing in tech
Investing in tech stocks with high growth potential requires time and research. Consulting with a financial advisor can provide valuable insights and guidance, helping investors make informed decisions when navigating the complexities of the sector.
Tech companies that are more established or operate in industries that have been around for decades tend to be safer investments, but they won’t necessarily offer the same growth potential as newer businesses.
When researching tech companies, sales growth, innovative solutions, strong market position and high demand. Also look at the management team’s track record. There are no guarantees, but these indicators can be helpful to assess what companies are well-positioned for strong performance.
You can use most common investment accounts to invest in tech stocks and tech-focused ETFs. These include traditional brokerage accounts and tax-advantaged retirement accounts such as IRAs.
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Editorial staff, J.P. Morgan Wealth Management
