CHAPTER 16Information Technology


The global technology sector includes companies providing software, electronic equipment, semiconductors, and IT services used in every corner of the globe and is the driving force behind the digital economy. The technology sector has played a leading role in improving human productivity over the past few decades. Every sector of the global economy relies on the technology sector to run its operations effectively. The invention of the semiconductor was central to this revolutionary process, but semiconductors alone did not achieve this feat. Corresponding advancements in software and other electronic devices also played critical roles in enhancing productivity.

Schematic illustration of a chart compares the sector characteristics versus market.

Data source: Bloomberg, as of March 18, 2022.

Like the financial sector, many companies in the technology sector are interest rate sensitive; however, there is an important distinction. Businesses in the financial sector are primarily affected operationally by changes in interest rates, but in the case of technology companies, valuations may also be impacted. This is especially true for tech companies trading at high valuations. As previously noted in Chapter 5, rising interest rates have a larger, negative impact on long-dated bonds and the share prices of companies whose cash flows are expected to occur further into the future. The reason the technology sector is ...

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