The technology sector has experienced a considerable drop in the stock market in recent months, mainly due to the increase in inflationthe rotation within the market from growth to undervaluation, the weakness in consumer demand and changes in the chains of supply. Although market noise has clouded the picture, long-term drivers of the tech sector remain intact.
Some of the major issues discussed during the trip were the increased demand for digitization and automationthe powerful vectors of growth, the solid trajectory of the semiconductorsthe appearance of new technologies to improve the transition to the cloud and the growing emphasis of companies on maintaining the profitability through pricing power.
“The Covid and the disruptions in the supply chains have really become ctechnology adoption catalystsespecially digitization, automation and hybrid work”, he points out about the opportunities of tomorrow Hyun Ho Shomanager of Fidelity Funds Global Technology. “Companies must invest in technology to maintain a competitive advantage in challenging environments. hybrid work and automate processes to reduce supply risks”, he adds.
And where can the main potential be found with falling valuations on Wall Street today within the tech space? For Ho Sho, the main areas of investment that will benefit are the cloud, security, data analytics, and hardware companies that provide technologies for hybrid working models. “For example, Amazon has a bullish view on this area thanks to its AWS cloud services business,” he says. “They see the cloud value proposition as becoming even stronger with hybrid working, a trend that is expected to continue post-virus,” she says.
Despite macroeconomic headwinds, data center and cloud spending are holding up
In this sense, despite the macroeconomic difficulties, lData centers and cloud spending are holding up. “Our meeting with Marvell Technology, which develops and produces semiconductors, revealed a strategic reorientation of its portfolio to focus on data centers to the detriment of consumer products,” shares the expert of the American manager. “It’s limits your exposure to cyclical consumption and the high number of new large chip customers should accelerate revenues,” he explains.
Within the semiconductor sector, companies consider that electric vehicles are a key driver long-term for chip demand. Approximately 10% of global car sales in 2021 were electric vehicles, that is, a market share four times that of 2019, which is a great avenue for growth as the rest of the global car park converts. “In other sectors, conversations confirmed that AI-based recommendation engines should also offer a return on tangible investment for Internet companies”, says Ho Sho.
The new technologies
The world could find itself before the early stages of transition to the cloud due to network bandwidth limitations. Intel fully trusts CXL, a new and interesting interconnection system of memories that could considerably increase the memory bandwidth of servers (which is an advantage for memory chips and cloud services) and the calculation capacity (good for data center operators with chip demand, who will be able to offer new and more interesting offerings to customers).
“The technology also runs through existing physical interfaces, which should facilitate and increase its adoption by consumers. for the next few years”, says Ho Sho. Given the market disruption and overreaction to the current short-term noise, active bottom-up investors face a good opportunity to generate returns, as specified by the experts. “Valuations are at attractive levels and the leading technology companies in the sector are now trading at low multiples without any change in their long-term growth profiles,” they highlight from Atlantic Capital in a report.
“Following conversations in Silicon Valley with companies like zoom (videoconferencing platform) and Zendesk (customer service software company), I reinforced my conviction in growth software companies”, says the manager of fidelity. In this way, according to Sho, there would be opportunities in leading software products found in the early stages of penetration and with market opportunities open, which trade at reduced multiples and do not have a history of inflated demand due to Covid. “I hope that increase mergers and acquisitions in the software sector, given that many small companies with desirable assets are now much cheaper due to recent strong sales”, he concludes.