It has been a turbulent year for the technology sector, with rising rates and elevated inflation dampening investor enthusiasm for the high-profile space. Despite continued market scepticism, seven investors explain why they remain confident in the long-term outlook for the vibrant and vast tech sector.
Tech investment still mission-critical
Nick Rubinstein, technology equity portfolio manager at Jennison Associates
The secular growth trends in tech – cloud computing, 5G, and cybersecurity – accelerated during Covid, but are part of a larger story. The tech industry has gone through many cycles. The pandemic represented the start of another cycle, which will be dominated by these secular themes over the next 5-10 years.
We believe companies will continue to make investments in tech, despite recent uncertainty and rising interest rates. These investments are, for many companies, mission-critical for growth and to maintain leadership positions in their industries. They are also a potential source of cost reduction, mitigating spending in other areas of infrastructure, such as facilities management. While tech spending is returning to a more normal rate, our research suggests digital transformation has become a higher priority than it was before the pandemic.
Reports of tech’s death greatly exaggerated
Ben Gilbert, model portfolio manager at Sarasin & Partners
US tech stocks have been grabbing headlines for all the wrong reasons recently. While these US mega caps were market saviours during Covid-19, the exalted valuations of these businesses have been hit by higher interest rates, a genuine slowing of growth with an impending global recession, customers returning to a more ‘normal’ relationship with their digital lives, and a return to form for unloved ‘value’ sectors.
As thematic investors, we believe it is important we see through this noise and look to the fundamental economic reality. As digitalisation and automation continue to gather momentum, many US tech names will become multi-year – even multi-decade – beneficiaries of above-average growth. However, this cannot come at any price financially or at any cost to society. Investors need to remain focused on the price they are paying for this growth and aware of the ESG risks, for example the impact on tech valuations as a result of policy interventions to regulate these markets more severely. Nevertheless, reports of US tech’s death are greatly exaggerated.
Satellite industry set for blast-off
YT Boon, portfolio manager and head of thematic – Asia at Neuberger Berman
John Deere is one of the world’s largest agriculture machinery companies, with more than 180 years of experience manufacturing equipment such as tractors, harvesters, planters and sprayers. Having invested steadily in automation and machine intelligence, John Deere’s machines are now intelligent, connected, and have harnessed terabytes of precision data. The company has 300,000 machines connected to terrestrial cellular networks that provide farmers with agronomic data.
Such initiatives will unlock new economics for the satellite industry. John Deere alone puts the market opportunity for the satellite industry at 5,000 new machines annually that could be equipped with a satellite solution and about 40,000 existing machines for retrofit. Supporting this, John Deere estimates in developed areas like North America, 70% of the arable land is connected to an internet signal, whereas in emerging economies like Brazil, the number is only 20%. With better connectivity both in space and on the ground, the opportunity set is widening for companies across industries.
Financial sector ripe for digitalisation
Ken Wotton, manager of Strategic Equity Capital plc
Digital transformation is a pervasive theme across many industries, with investment in technology solutions being driven by the need to remain competitive, drive efficiency, reduce costs and improve customer experience, among many other reasons. The financial sector is particularly active in this area, as regulation, customer retention, automation of complex processes and the management and analysis of large volumes of data all drive demand for technology solutions.
Fintel is a beneficiary of these demand drivers in the area of wealth management and financial advice. Its technology and data solutions provide regulatory and business support for small and large IFAs, as well as deliver intelligence on buyer behaviour and access to customers for financial product providers. As a data and software platform, we believe it has the potential to accelerate growth, expand margins and command a premium rating over time. As a highly profitable, cash-generative and now debt-free business, it has the resilient financial profile to weather the current economic uncertainty and take advantage of the long-term opportunity.
Digital advertising slump simply a speedbump
Taymour Tamaddon, portfolio manager of the T. Rowe Price US Large Cap Growth Equity strategy
The growth in digital advertising spending in recent years has been nothing short of spectacular. From relatively low penetration a decade ago, digital advertising today serves as the primary platform for most companies’ marketing activity. Recently, however, various factors have combined to negatively impact the digital sector.
Nevertheless, the powerful tailwinds that have supported the rapid growth in digital advertising over the past decade – growing internet penetration, rising popularity of smartphones, increase in social media usage, rising penetration of e commerce, increased investment in technology and digital platforms – are very much intact. These same tailwinds are expected to underpin growth moving forward. These secular trends show no sign of abating, and as has been the case over the past decade, we expect digital advertising to continue to outperform other forms of media for years to come.
Emergence of emotion artificial intelligence
John Plassard, director at Mirabaud Group
Feeling happy? How about an advert for a beach holiday to keep your spirits up? Feeling depressed? How about an advert for a drink that could turn things around? Emotion artificial intelligence, or affective computing, allows such a ‘feat’. An algorithm could determine your mood from your appearance, handwriting or speech, and offer you a product or service accordingly. This may sound futuristic, but it is an investment theme that is already proving increasingly impressive.
Affective computing is a branch of computer science that relies on bodily data and facial expressions to recognise and interpret a person’s primary emotions. The technology allows companies to broaden their usual view of their customers or users and even enables governments to detect malicious attack or monitor the spread of development of a disease. The market is expected to grow from $28.6bn in 2020 to $140bn by 2025.
Tech disruption drives auto resurgence
Jane Andrews, founder and CIO at BambuBlack Asset Management
The global automotive industry is undergoing a paradigm shift. While this shift has been well documented in China and the EU, it is worth noting the multi-billion opportunity in India. India’s EV market is forecast to reach $206bn by 2030, which will make it the world’s third largest in terms of volume.
While the high cost of EVs remains the key challenge, largely due to the expensive compact-sized lithium batteries they operate on, these costs are expected to drop as India increases domestic battery production. The federal government has introduced subsidies to incentivise consumers and local auto manufacturers to increase the adoption of electric mobility transport. Supplementing these incentives, India is also witnessing a wave of urbanisation sweep through its rural communities – similar to that experienced by China 20 years ago – which is further strengthening consumer appetite.