Technology Sector: Definition, 4 Major Sectors, Investing in Tech

What Is the Technology Sector?

The technology sector is the category of stocks relating to the research, development, or distribution of technologically based goods and services. This sector contains businesses revolving around the manufacturing of electronics, creation of software, computers, or products and services relating to information technology.

Understanding the Technology Sector

The technology sector offers a wide range of products and services for both customers and other businesses. Consumer goods like personal computers, mobile devices, wearable technology, home appliances, televisions, and so on are continually being improved and sold to consumers with new features.

On the business side, companies are dependent on innovations coming out of the technology sector to create their enterprise software, manage their logistics systems, protect their databases, and generally provide the critical information and services that allow companies to make strategic business decisions. The term "technology sector" is frequently shortened to tech sector and is used interchangeably with the term "technology industry or tech industry."

The technology sector is often the most attractive investment destination in any economy. The U.S. technology sector boasts of companies like Apple, Google, Amazon, Netflix, IBM, and Microsoft. These companies drive the growth in the tech sector, and the enthusiasm around their long-term potential has them trading at price-to-earnings multiples that look ridiculous compared to almost every other sector.

Growth in the Technology Sector

The term technology sector has been broadened many times to include businesses that may be better served by a more specific category. The technology sector was initially anchored in semiconductors, computing hardware, and communications equipment. In addition, growth also includes jobs. According to the U.S. Bureau of Labor Statistics, jobs in computer and information technology are poised to grow 13% between 2020 and 2030.

The addition of software companies expanded the perceived tech sector to include anything based on coding. Soon, more room had to be made for internet companies, which flooded during the Internet boom. Some of these internet companies were media and content companies that used code as the medium. Still, others were off launching rich features that grew to be e-commerce, social media, the sharing economy, and even cloud-based computing.

The technology sector now includes such a diverse set of companies that the subsectors are far more useful than the overall one. Unsurprisingly, there is no universal agreement—some pundits want a whole new sector for each innovation—but the big buckets include semiconductors, software, networking, Internet, and hardware.

From there, all the subsectors can be further broken down. For example, hardware breaks into wearables, peripherals, laptops, desktops, and so on. People may argue that it doesn't make sense to call a cloud computing company a software company, but the arbitrary separations are a bit more manageable than the massive label of "tech sector" for every company.

The Bottom Line

The technology sector is the part of the economy made up of businesses that focus on electronics, software, computers, social media, and other industries related to information technology. These companies often invest in developing new projects with future potential, even without an immediate payoff.

Many parts of the public and private sectors rely on products and services developed by technology companies. The tech sector is often a growth part of the economy.