The Technology Sector from a Value Investor’s Perspective
Unproven business models were the norm of the “growth over profits” mentality in the nineties as technology companies tried to expand their customer bases as quickly as possible at the expense of revenues, profits and earnings.
Many of the large-cap technology companies of today are extremely well known with robust global franchises, better financial health, strong levels of profitability and attractive valuation levels.
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Artisan Value Fund’s exposure to technology stocks has been a by-product of the investment team’s three key criteria—attractive business economics, sound financial condition, attractive valuation— playing out in the securities that it owns within the sector.
Evolution of the Technology Sector
The technology sector has traditionally been considered a growth sector. Its evolution over the years has been driven by innovation and its ability to improve business and consumer lives. In recent years, innovation has focused on mobility, cloud computing and social media.
One point in recent history where we saw the most evidence of the technology sector’s rapid growth was in the late nineties with the advent of the internet, cell phones and the rise of the dot-com era. Many of the start-up technology companies in the 1990s were primarily focused on rapidly building market share around new and largely unfamiliar concepts and/or technologies, which typically required large amounts of capital expenditures. The capital intensive nature of starting those types of businesses was spurred even more by venture capitalists who were less discerning about the quality and long-term sustainability of a business model and more concerned about the potential of record high stock valuations. As a result, unproven business models were the norm of the “growth over profits” mentality as companies tried to expand their customer bases as quickly as possible at the expense of revenues, profits and earnings.
Numerous technology companies that emerged out of the tech boom were acquired or failed after the bubble burst.
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