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MyMoney.my.id > Blog > Psychological > Tech Winter is Coming
Psychological

Tech Winter is Coming

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Last updated: 2024/01/22 at 12:55 AM
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“Tech to winter is coming” Refers to a period when tech and tech companies are experiencing a decline in share prices due to factors such as growing growth, rising interest rates, or expanding markets. This usually occurs in fall or winter.

This term first appeared in 2015, when the technology stock market in the United States experienced a significant decline. The decline was due to factors such as restrictions on revenue generation, market trading, and rising interest rates which increased the cost of capital of technology companies. This decline in stock prices occurs in autumn or winter, so the term “tech to winter is coming” appears to describe this situation. This term was later used broadly to refer to the period when technology and technology experienced a decline in share prices in the market.

In this context, investors must be careful in choosing technology stocks and take appropriate measures to avoid potential losses. This can be done by continuously monitoring market conditions, analyzing financial company technology reports, and taking protective measures such as portfolio diversification and purchasing stock options or insurance.

In addition, investors may also consider allocating some funds to non-technology sectors or companies that have more stable growth prospects or seek more profitable investment opportunities in the global stock market. In this way, investors can minimize risk and maximize profit potential in a “tech to winter is coming” situation in the stock market.

Examples of technology stocks that may be affected by “tech to winter is coming” are companies like Apple, Amazon, Google, and Facebook. When winter comes, the share prices of these companies may experience a decline due to factors such as increased earnings growth, fears of market expansion, or rising interest rates which increase the cost of capital. Investors must be careful in choosing shares of this technology company and carry out careful analysis to avoid the risk of loss.

To avoid the risk of loss from “tech to winter is coming” in the stock market, investors can take several steps such as:

* Constantly monitor market conditions and pay attention to factors that may affect the price of technology stocks such as earnings growth, market uncertainty or interest rate hikes.
* Conduct a careful financial analysis of selected technology companies before buying their shares. This can be done by evaluating the company’s financial statements, calculating financial ratios such as return on equity (ROE) or price-to-earnings (P/E), and comparing them with similar companies.
* Look for investment opportunities in non-technology sectors or companies that have more stable growth prospects and are less affected by factors affecting technology stock prices.
* Allocating a portion of funds to global stock markets may have greater potential returns and lower risk.
* Use protection tools such as options or stock insurance to reduce the risk of loss from fluctuations in the price of technology stocks.

By taking these steps, investors can minimize risks and maximize potential profits.

The trigger for the emergence of tech winter is coming

The era of low interest rates
To understand this condition we need to step back for a moment to 2008 when the global financial crisis occurred. To overcome the worsening situation, The FED decided to cut interest rates to a very low level. As a result, the money supply increases significantly because people are not interested in depositing their money at very low interest. But this large amount of money has to flow somewhere in order to provide big profits. One sector that has finally had a windfall is the technology industry sector, especially startups that offer a number of innovations in digital technology and other cutting-edge technologies.

Money from investors flows into the technology sector through various channels, from investment banks, venture capital to individuals (angel investors). They inject massive capital into technology companies, get a portion of company ownership shares in the hope of making sales that continue to grow until they are finally large enough and deemed worthy of an IPO or acquisition by another company in the future. It is at this stage that investors can benefit by selling their portion of share ownership.

Covid-19 pandemic

In fact, in 2019 the US economy has started to fully recover from the remnants of the 2008 crisis. The Fed has started raising interest rates which has made funding for technology companies start to feel unattractive because deposit rates have begun to creep up and attract the interest of many investors to deposit their money. As a result, the money supply began to decrease slowly. However, unexpectedly the emergence of the Covid-19 pandemic caused the economy to weaken again and once again the US central bank needed to cut interest rates to their lowest level. The money supply has returned to a high enough level that the flow of funds to the technology sector has boomed again.

However, US economic conditions in 2022 have shown signs of recovery and even the inflation rate has jumped significantly to a level of 8% because people flocked to shop after the activity restriction policies began to be relaxed. On the other hand, The FED always tries to keep the inflation rate stable at 2%. To achieve this, it was decided to increase the Fed rate aggressively which made deposit rates also increase so that large investors chose to deposit their capital in banks and withdraw their money from investments in the technology sector.

Deteriorating conditions in the technology industry
Because the liquidity of technology companies is drying up, many of them don’t have budget space to pay employee salaries. To overcome this condition, there are many startups that decide to lay off a number of their employees. This condition is of course bad for the technology sector, so it is only natural that in the end a number of media, especially financial news, use the phrase “tech winter is coming”.

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