To put this into context in stock price terms, 3D Systems’ stock price rose from $10 at the start of 2012 to a peak of nearly $100 in January 2014 before falling back to $7 in January 2016.
Amazon is a great example of the right hand side of the hype cycle. Amazon was on the left hand side of the hype cycle back in 1999 and in early 2000 as the whole market was caught up in expectations for how the internet was going to transform our working and social lives.
The stock rose to more than $100 before falling to under $6 in September 2001.
Since then Amazon has been taking significant share in both retail and now also in public cloud infrastructure, with its Amazon Web Services offering.
This has seen Amazon’s share price rise from less than $6 to more than $1800 in under 20 years, highlighting the potential in the period when adoption is strongest for the company’s technologies.
Another example of a stock now on the right side of the hype cycle would be Software as a Service company, ServiceNow (Now US).
Back in 2013/14 overly bullish expectations for a broad range of the next generation of software stocks led to soaring share prices and valuations, including that of ServiceNow.
Falling by the wayside
Since then, many of those names that have fallen along the way including FireEye (FEYE US) as the outlook for these companies developed differently to expectations; this happened for a variety of reasons (including competitive positioning and changes to the addressable market).
Many of these stocks underperformed despite the software sector being an outperformer in this timeframe.
Through this period, ServiceNow has established itself as a genuine next-generation software platform, growing out from its IT service management base into a number of new growth areas (including IT operations management, security and human resources), this means that ServiceNow is now increasingly seen as a strategic vendor, helping its customers to automate processes and drive efficiency across their operations – this has enabled ServiceNow to exceed growth expectations.
The recent hype around cryptocurrencies, Bitcoin and Ethereum and in particular the various ICO (initial coin offerings) raising funding for new cryptocurrencies or digital tokens, is the closest to the fervour back in 1999/2000 and this remains an area we continue to avoid despite understanding the clear potential benefits to come from the underlying blockchain technology.
Our investment process focuses on navigating these hype cycles, understanding the growth potential of new technologies and identifying the barriers to entry that companies have built around their technology offerings.
Given the magnitude of price appreciations and price falls of many new tech stocks, it is particularly important to have an experienced team analysing these technologies and companies.
Graeme Clark is a fund manager on the Janus Henderson Global Technology fund
