Technology bubble unlikely to burst
The growth in global technology stocks is not a bubble and is just the beginning of a cycle that could last 30-years, according to a leading US fund manager.
The growth in global technology stocks is not a bubble and is just the beginning of a cycle that could last 30-years, according to a leading US fund manager.
“We don’t think what is going on (in technology stocks) is a bubble,” says Wellington Management Company global portfolio adviser Dr Brian Guck. “It is just the beginning. We may not understand the direction at present, but we think the growth (of technology stocks) will go on for the next 20-30 years.”
Guck, speaking at a Melbourne FPA chapter lunch, says the keys to driving this growth are the increase in the speed of chips, networks, bandwidths and the Internet.
“It is about getting this technology to work together,” he says.
“Processors are running at double the speed they were 12 months ago and there is no end in sight to what is happening.”
The use of networks is rising as more people become connected, and this is leading to increased demand for faster connections.
“In 12 months time, most people will have access to broad—band technologies and the high speed of computers will make this hum,” Guck says.
“This will lead to higher productivity in business which will bring new ways of creating wealth.”
Guck cites examples such as the large US automotive manufacturers pooling their parts inventories and putting them on-line.
“The retail price for automobiles is actually declining and we haven’t seen the end of that,” he says.
This increasing use of the Internet is changing the structure of companies. The old model is vertical integration, but the next structure is the virtual company, Guck says.
“The new company is virtual and on-line. Even the smallest company now appears to be larger than what they are,” he says.
The arrival of the virtual company means the ways of evaluating must change, although checking the risk of the investment is still critical.
Guck believes that if too many technology companies fail, taking their investor’s funds, then it will create a new form of economic destruction unwitnessed in the world before.
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