We've all heard of the car manufacturer Ford, but how many people know about its former competitors Albert-Detroit, Acme, Adams, and Aerocar? Perhaps very few, because unlike Ford, they went bankrupt and closed down early on. And this is just a portion of the failed automobile companies that started with the letter "A". Many early automotive companies lacked the innovation and market adaptability that Ford possessed.
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03-31, 2025We only remember the winners who eventually dominated the world's automotive industry, and the current high-tech industry is similar. About a century ago, many investors bet on the wrong "horseless carriages" and lost their money. Only a few chose Ford or Chrysler, which is almost exactly what is happening in the tech industry now. This historical parallel underscores the speculative nature of emerging industries.
As widely reported, tech stocks have been extremely volatile over the past year, with stock charts looking like roller coasters, even before President Trump's tariff policies caused a broader stock market decline. Elroy Dimson, a professor of finance at the University of Cambridge, believes that a major reason for the volatility in the tech industry is that, like the early automotive industry, we don't know which tech companies will ultimately win out. This uncertainty makes investment decisions particularly challenging.
Professor Dimson said: "If you go back to the beginning of the last century, there were many car companies, and it was clear that cars would have a huge impact. But almost every company went bankrupt, and you didn't know which company's stock to buy." Furthermore, not all high-tech companies are profitable. There are two factors that measure the return on stock investment: the growth of profits or dividends, and the growth of stock value. The focus on future growth can overshadow current profitability.
Some solid companies may pay reliable dividends and the stock value gradually increases. But many high-tech companies don't pay much in dividends, or even none at all. Instead, they are investing in future growth, so their stock prices fluctuate based on expectations of future profits. Susannah Streeter, head of money and markets at British financial services firm Hargreaves Lansdown, said: "Tech stocks are more volatile, valuations are high, price-to-earnings ratios are high, and growth stocks are more sensitive to interest rate changes." This makes them a riskier investment compared to more established companies.
Ms. Streeter also said that investors in such stocks are effectively betting on "jam tomorrow" rather than "jam today." They are all trying to pick the next big winner of the future, rather than a company that pays profits now, but one that will eventually pay huge dividends at some point in the future. Therefore, any news or hint that future growth is not as expected could cause the stock value to plummet. On the other hand, any good news will boost the stock price, even if current profits or even losses haven't changed, because investors will flock to stocks they believe are future winners. Because there is no support from current profits or dividends, these stocks are more volatile. This speculative behavior amplifies market swings.
This means that, as Professor Dimson says, "small changes in growth expectations can lead to huge changes in stock value," which can affect a large number of companies at the same time. "You have companies that are fairly similar, so when growth rates change, it affects quite a few companies in a similar way," he said. "This is not that different from the dot-com bubble in the early 2000s. There were a lot of companies with huge growth prospects back then. When the growth prospects disappeared, those companies disappeared as well." The interconnectedness of tech companies exacerbates market-wide fluctuations.
Even today, there are not many truly large high-tech companies. In the United States, they are often referred to as the "Magnificent Seven" - chipmaker Nvidia, Google's parent company Alphabet, Amazon, Apple, Microsoft, Facebook's parent company Meta, and Tesla. As a result, the market is easily spooked, especially since several of these companies are still young and dominate industries where previous leaders have collapsed. Does anyone still remember Ericsson, Boo, or Compaq? The dominance of a few key players makes the market susceptible to shocks.
Unlike steel production or food manufacturing, technology is changing very quickly, and clearly, a new high-tech company has the potential to emerge and destroy the business model of its most established competitors. There is simply no guarantee that today's "Magnificent Seven" will remain magnificent, or even remain the same seven companies. Take Tesla, for example, whose sales have recently [declined due to two well-publicized factors](https://www.bbc.co.uk/news/articles/cz61vwjel2zo). First, some potential customers object to Tesla owner Elon Musk's involvement with the Trump administration. Second, Chinese electric vehicle companies such as BYD are becoming increasingly powerful competitors. These challenges highlight the dynamic nature of the tech landscape.
Meanwhile, Nvidia's stock price fell sharply earlier this year after the release of the Chinese AI chatbot DeepSeek. The app was reportedly created at a fraction of the cost of its competitors. DeepSeek's rapid popularity has raised questions about the future dominance of American AI and the scale of investment planned by American companies. This is worrying for Nvidia, as it is at the forefront of manufacturing microchips for AI processing. The emergence of new competitors can quickly disrupt established market leaders.
AI is now the biggest game in tech, and it seems everyone is claiming that AI is changing their industry, their products, and their profits. They can't all be right. Or as Professor Dimson says: "At least in 1910, you knew what a car did, but today with AI companies, you have to rely on the wisdom of the crowd, and that's not enough for AI companies." The hype surrounding AI makes it difficult to discern true value from inflated expectations.
Robert Whaley, a professor of finance at Vanderbilt University, added that not all AI companies can win. "AI is undoubtedly exacerbating volatility in the tech sector. The race is on." This means that AI stocks are sensitive to predictions. Any indication that a particular company is falling behind in the AI race could mean that many investors (most of whom don't understand the subject) abandon it in favor of another company that seems to be further ahead. The competitive landscape in AI is driving increased market volatility.
There are also some investors who don't seem to care which company's stock they buy, as long as they are in the "booming" high-tech industry, because they are speculating and diversifying their risk. In short, stock prices are not always a rational measure of a company's value, especially in the high-tech industry, or even a measure of its prospects. Instead, they can represent investor optimism. And optimism is not always lasting. It tends to be fleeting, transient, and fashionable. Sometimes, optimism meets reality, or it just gradually fades away. All in all, it is volatile. The influence of investor sentiment on stock prices can lead to irrational market behavior.
