The Rise Of The Tech Stock Essay

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Rise of the Tech Stocks

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Over the past few years, many millionaires have been created due to the economical explosion of the stock market. The market isn t just growing, as it did in the mid to late seventies; but it is on steroids, and is growing like never before. Backed by the relentless, yet sometimes spasmodic, growth of the NASDAQ Composite, Wall Street s impact on the future cannot be denied. For as long as the market has been in existence, drastic changes such as these have never taken place. What awesome power could have produced so much money in so little time? What colossal force could have caused the United States economy to flourish? The answer lies in one, simple, recently coined phrase: the tech stock.

The stock market has been around since people traded silver for ownership of cargo 200 years ago, yet many people don t know how it works, or where their money goes when they purchase a stock; they simply think “buy low, sell high.” Although this is a good basic investment plan, it is imperative that one knows where his money is headed when he buys a thousand dollars worth of a specific stock. When one purchases a stock, they are actually purchasing part of a company (Brian 1). The reason one would do this is because he wants part of the profits of the company. If one purchases 1% of a company, he will receive 1% of the income, to put it in a simplified manner. The money the company gains from selling their stock is placed back into the company. This way, the company can grow, and produce more profits for the stockholders. The company s value is represented by the stock price on the stock exchange (Brian 2). Over time, a method of judging a stock s performance, called the “profit to earning ratio” was created. “P/E is shorthand for the ratio of a company’s share price to its per-share earnings. For example, a P/E ratio of 10 means that the company has $1 of annual, per-share earnings for every $10 in share price (Green 1).” This ratio basically represents how much money the investor is putting in per dollar earned. This was generally a good thing to look at when choosing a stock to invest in, but the P/E ratio can be misleading, especially in the few tech stocks that have tremendous stock prices, yet have little net profit.

No one knows exactly when the tech stock came about, but it seems like it came all at once. The phrase “tech stock” simply refers to all stocks that deal with any form of technology related, directly or indirectly, to the computer or computer chips. A good portion of the popular tech stocks today deal with the Internet (Brian 4). One reason for this is the easy access by millions of people worldwide. Small companies are able to reach out to the whole globe with just a few bucks, and thus become prosperous over a short amount of time. Just a few of the most popular tech stock corporations include: Microsoft, Apple, TI, Amazon, Yahoo, and Dell. Companies such as Microsoft, Apple and Dell are companies that handle computers directly, and have been around for a long time (NASDAQ 5) TI creates many semiconductors that are found in most all products that have computer chips in them. Amazon and Yahoo are both directly related to the Internet. These companies are popular due to their originality and business management. However, popularity hardly gains profit, so why is it that Yahoo can make so much money on the stock market? Surprisingly and ironically enough, it is precisely popularity that causes its gains. Because of the popularity, people continue to purchase Yahoo s stock. Although the company isn t making direct profit, it certainly makes a lot of money from the stock purchases, so the company actually makes the money off of the stock market (Brian 5). Rare, indeed, to see this at such an extreme. With all of this success must come organization, and thus is the role of the NASDAQ Composite.

Although NASDAQ came about long before the rise of tech stocks, it now represents the growth that they portray. This is mostly due to the large volume of blue chip Internet stocks that have joined the Composite, as well as the small technical companies that are looking for a big break. Duarte summarizes the whole NASDAQ universe in once sentence; “The NASDAQ is fueled by blue chip stocks and small caps which explode into high-earnings (Technology 1).” And explode it did. In just over one year, “The Index gained 1876.62 points and 85.59 percent for the year. The NASDAQ Composite Index also eclipsed the 3000 and 4000 point milestones during the last quarter of 1999″ (Nasdaq 1). This far surpasses the Dow Jones Industrial, which only gained 25.22% over the 1999-2000 year. “The market s best index performers were the computer, telecommunications, and biotechnology up 105.03 percent, 102.71 percent and 101.64 percent respectively” (Nasdaq 2). This obviously displays a growing interest in the tech stock, which has caused this major uprising to occur. One may wonder how the Dow Jones Industrial got off so bad, because, after all, it represents our nations largest companies.

For a long time, the Dow Jones Industrial has represented the stock market as a whole, but times change. One cause of this change is the high interest rates that affect the corporate stocks such as Wal-Mart and ExxonMobil. These stocks reduce in price as a result of this, and therefore, the Dow