10 Tech Trends to Look For in 2006

This column was originally published on RealMoney on Dec. 22 at 7:20 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

This was an eventful year in technology, and I believe 2006 will bring more big news. Outsourcing and music phones should explode (Apple could make a foray into this field), and Lucent could implode. Dell could embrace AMD, and video games should be the next big thing.

Merger mania: In the late 1990s, merger activity was generally driven by the urge to build empires (and of course some of that good old synergy stuff). But these days, most big tech companies simply aren't growing very quickly -- to me, that means we'll see an awful lot of M&A activity.

Large companies such as IBM (IBM), Cisco (CSCO) and Oracle(ORCL) will make a lot of deals, and that means a lot of big fat fees for Wall Street firms such as Goldman Sachs (GS).

Investors with an extreme appetite for volatility might want to investigate M&A specialist Greenhill (GHL), which recently hired Dhiren Shah, the former head of Morgan Stanley's(MWD) powerhouse tech banking franchise.

Greenhill is my biggest miss of the year: I should have recommended it when it was below $40. It's not a back-up-the-truck name, but do some homework and wait for the right opportunity.

Slow growth, more outsourcing: I believe growth will slow for large companies over the next couple of years. To meet quarterly earnings expectations, they'll try to save money by outsourcing just about everything they can. My favorite play here is Cognizant Technology Solutions (CTSH), which has an almost absurd record of sequential revenue growth. Because it's based in New Jersey, we can analyze it just as easily as we would any other American company. However, this stock is very risky. If it pulls back below $45, I'd jump on it.

Video games to be loved again: Microsoft's(MSFT) Xbox 360 launch was an absolute mess, but sooner or later, sufficient production will come on line and hardware prices will fall. Plus, we'll see the launch of the PlayStation 3, which will be one of the hottest tech items of 2006. Video games will be touted as the next big thing in the mass media, but RealMoney readers already know that.