stock trading FAQ's

What Are New Economy Stocks?

In contrast, so-called new economy stocks are the companies leading a revolutionary transition to the internet and activities in the cloud. The market has dubbed Meta (formerly Facebook), Apple, Amazon, Netflix, and Google as five of the top new economy companies to watch under the acronym FAANG but there are also many more. Branching out from basic internet search, investors will find a plethora of internet-based technology offshoots that are also driving new economy growth in the twenty-first century, like companies in the areas of internet of things, social media, cryptocurrency, cloud storage, e-commerce, streaming, sharing, big data, fintech, and artificial intelligence.

New economy stocks are in the business of providing innovation for the easy and fast exchange of services. In comparison to old economy stocks, they can have much lower costs of sales and much less need for the physical assets required to manufacture, store, and sell physical goods.

The new economy era reportedly began in the 1990s, fueling the dotcom bubble and dotcom burst as investors saw the vast potential and economic shift. In the twenty-first century, these companies have proved to achieve much of the success initially envisioned, continuing to take huge strides with relatively high financial risks to achieve new groundbreaking services centered around the capabilities of the internet and internet technologies. As such, new economy stocks tend to fall in the growth category. They have huge growth potential, treading into new waters and uncovering new opportunities that can possibly revolutionize the way individuals and businesses interact.

As service-oriented, growth companies, the fundamentals of these businesses are drastically different when compared to old economy stocks. New economy stocks typically need to take on high levels of debt, may have a low return on equity, and often report high price to earnings levels as investors believe in long-term speculation. New economy stocks are generally not known for paying out dividends and will typically have relatively lower levels of cash flow since cash is often used for reinvestment.

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