'Big tech will grow again. Here are the winning companies'
Tsmc raises prices, Microsoft gains share, Apple revamps iPhones, Alphabet leads in artificial intelligence and Crowdstrike in software security
3' min read
Key points
3' min read
Technology is not in a bubble, corporate profits continue to rise and any comparison with the dotcom bubble that burst in 2000 is improper. This is the opinion of Aurélien Duval of Dpam, an Sgr that manages investment funds and discretionary mandates on behalf of institutional clients, totalling EUR 47.1 billion.
Although there are many important issues that can direct the markets, it is still the big techs that dictate. How long will this last?
It will last, because despite various macroeconomic challenges and the fact that Big Tech has significantly outperformed the S&P 500 over the past 18 months, their earnings continue to grow at a sustained pace, consistently outperforming expectations thanks to several key factors, such as the migration to the cloud, the widespread adoption of e-commerce and the expansion of digital advertising. These secular trends have been accelerated by recent developments in artificial intelligence (AI). More and more companies are re-evaluating their IT budgets to take advantage of Ia. We therefore continue to expect a strong performance of these companies in the medium to long term.
What impact could the strong dollar have on technology companies? What are your predictions on the future development of the currency also in light of the US elections?
The political influences are multiple and all binary. It seems too early to give an opinion on such a complex subject, except that I would not be positive on the US dollar if Trump becomes president. That said, it is impossible to say who will win the election. In addition, we are seeing a lot of uncertainty in France and a further escalation of the war in Ukraine could further weaken the euro. Interest rate parity (EU vs. US) will also play an important role, given the stubbornly high inflation in the US (apart from the latest CPI data). We can expect a relatively stronger dollar, but in light of the above, it is not possible to try to predict an exchange rate by the end of the year.
Is the Ia craze an anticipation of another bubble?
Comparisons are often made with the dotcom bubble, yet we struggle to find analogies with the current scenario. While in 1999-2000 the market recorded astronomical P/E multiples, with stocks like Cisco trading at 130x P/E at one point, today Alphabet and Meta trade at 22x P/E, while Microsoft and Nvidia are at 35x. That period required massive hardware investment in a specific location, whereas today an Nvidia Gpu chip purchased from Microsoft or Amazon can be enjoyed by a customer anywhere in the world. Not to mention the fact that a significant number of companies in the dotcom era were debt-financed whereas today AI is mainly used by cash-rich companies.
When ChatGpt captured the world's attention in late 2022, it quickly demonstrated the immense potential of Ia. How much of an impact has the new language model had for companies?
ChatGpt certainly unleashed the potential of Ia. A year and a half later, we believe that many applications have emerged and we strongly believe that some represent an incredible opportunity for companies and an excellent way to optimise costs. At Dpam, we have identified two types of 'Ia' companies: Ia Enablers, the companies that provide the necessary and crucial technology behind Ia services or products; and Ia Adopters, those that provide Ia services and products to end-users who thereby achieve significant productivity gains. Ia leadership is thus not only limited to software or data companies but also expands to the consumer sector.
