The coronavirus pandemic affects the worldwide economy in two ways. Firstly, governments are injecting money into their economies to support companies and workers. Secondly, a number of industries have almost completely shut down while we work to control the virus. The universal hope is that this crisis will pass within a couple of quarters and that economies will be back to near-normal towards the end of 2020. However, there's complete uncertainty in this assumption, with no plan for next year if a vaccine isn't available.
So, how does this affect investment in the tech markets? No one knows, but there's plenty of speculation.
Tech sector will remain reasonable buoyant
We can attribute the tech sector's resiliency to the massive long-term growth prospects of tech stocks. The industry remains attractive owing to continuous digital transformations. The rapid adoption of cloud computing and ongoing integration of Artificial Intelligence and machine learning also act as significant catalysts.
The deployment of 5G technology is likely to be a supportive factor. Indeed, demand for remote working and interactions (such as teleconferencing and telehealth) amid the pandemic highlights the need for 5G technology, potentially accelerating adoption in the medium to long term.
Blockchain, IoT and Augmented Reality are other attractive propositions. The COVID-19 prompted working-from-home model has seen a considerable surge in demand for VPNs, collaboration software, and networking infrastructure and security products.
Additionally, the tech companies, particularly the large vendors, are cash-rich, which provides them with buoyancy amid an adverse business conditions.
With fears of a downturn, investors can look to tech stocks that historically have strong fundamentals despite an inevitable decline in IT spending. Also avoiding sectors that are more sensitive to consumer spending. These stocks have better prospects once the impact of coronavirus dampens, given the measures to contain the virus.
History tells us new technologies are borne out of economic adversity
Interestingly, macroeconomic events significantly affect new tech adoption cycles. For instance, a range of new technologies were created during previous recessions, stimulating major technological trends. Perhaps there is never a more relevant time for companies to look to technology to enable business agility than a recession.
The 1960s saw the ascent of the mainframe. Though the majority of companies couldn't afford to invest in their own computers, many took advantage of new "time-sharing" services to access computing power. Time-sharing morphed into shared computer services in the 1970s since the oil crisis of the period prevented many companies from purchasing mid-range systems.
In the 1980s came the advent of the personal computer. Simultaneously the US struggled through another recession, which facilitated the growth in systems integration services.
Client-server computing corresponded with the 1990s recession, and so began the era of IT outsourcing.
Software as a Service gained traction during the 2001 recession, as many organisations sought new ways to achieve higher economic value from their enterprise applications.
The Great Recession of 2007-2009 forced organisations to take a closer look at the economic benefits of cloud computing.
I'm willing to bet that the next recession will push many companies to finally push forward with IoT initiatives, just as we saw innovation come out of the previous down cycles.
For many the coronavirus pandemic is the first time they will realise the power of technology in enabling remote working and instant knowledge sharing. And the ensuing recession will force business executives to pursue opportunities to gain the operating efficiencies, achieve increased customer engagement, and capitalise on the new markets created by technologies such as IoT.