Two weeks ago, I wrote an article talking about the recent sell-off in US tech shares. The market was a little bit spooked due to rising bond yields around the world. This would make it harder for debt-heavy companies (like most of the technology sector) to raise new capital. Also, the worry around easing lockdown restrictions could mean less demand for the services offered by some businesses. But does this mean I should avoid all US tech shares?
Being selective about US tech shares
I wouldn’t be buying a NASDAQ tracker fund at the moment. But I do think there is value in being selective when trying to get exposure to the US tech industry. I think it remains at the cutting edge of consumer demand, and so will continue to see revenue growth in coming years.
As a fairly old-school investor, I want a US tech stock that is currently making a profit. That rules out some companies in the NASDAQ. I get that I could buy into a loss-making company based on future potential. Yet the high valuations across the board make it too risky to do that, in my opinion. I accept that I’ll pay a premium, so I at least want to pay a premium for a profitable business.
As such, I’m keen on US tech shares such as Apple, Amazon (NASDAQ:AMZN) and Netflix. All are profitable, and have easy to understand business models that offer sustainable revenue. Of the three, Amazon is my favourite to buy now.
Going from strength to strength
Even though Amazon has been around for several years, it’s continuing to grow at a staggering pace. For example, take Q4 2020 results. Revenue came in at $125.6bn, up 44% on the same period last year. Net income doubled to $7.2bn. These are genuinely incredible figures of which very few businesses can boast.Â
I’m also impressed that a business that is already very large can continue to register such high percentage growth. One element to this is the new projects consistently being taken on. Also, extending initiatives to new markets is an easy way to tap into new revenue.Â
One example of this is Amazon Fresh. The first Amazon Fresh store opened in America last year. Due to the success, several are now opening in the UK. The shop uses machine learning and sensory technology to allow a seamless shopping experience. As such, I can simply put items of food into my bag and walk out (being automatically charged on my card later).
The ability for Amazon to leverage technology and use it in new areas is great. I think the outlook is equally favorable, based on projects like Amazon Fresh.
There are some risks here though. Firstly, Amazon might perform ok but there might be a better US tech share out there. Therefore I might be missing out on a better opportunity. At a company level, Amazon might get sidetracked by the sheer amount of subsidiaries it has, and take the eye off the ball of Amazon Web Services (arguably the main business function). Also, it may not see such strong growth when the world gets back to normal and it always faces regulatory threats too.
Ultimately though, I like Amazon and would look to buy the stock now.