Equity Strategy: Global Technology – Anchoring the CIO I.D.E.A. Framework
We maintain our conviction call on global technology
Chief Investment Office, Yeang Cheng Ling26 Jul 2024
  • Comments to restrict chipmaking equipment export & US supply chain policy won't hinder tech prospect
  • Development in AI will intensify revenue upside & profitability of global technology leaders
  • We maintain convictions on the outlook of global tech leaders, underpinned by a multitude of reasons
  • CIO I.D.E.A. strategy is well positioned to benefit from this secular uptrend
  • CIO I.D.E.A. strategy has delivered impressive returns, outperformed composite of tech funds
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Political noises unwarranted. Recent comments on restricting the exports of chipmaking equipment, possible US tightening policy on Taiwan supply chain, and investor rotation into small capitalisation counters have sent share prices of upstream technology leaders, software developers, and equipment makers into a tailspin. The rationale and details are sketchy at the current juncture, and actual implementation and effects remain unascertained.

Policy restrictions around technology firms are not new and have been in place since the middle of the past decade. However, it has not deterred the development and investment returns of the sector as global demand has stayed robust. Thus far, government-restraining policies have limited impact on the well-being and commercial importance of technology industries. We believe it will be the same this time around.

We maintain our conviction that the fundamentals and investment viability of the sector will remain impervious to political upheaval. 

Sea change driven by the formidable development in artificial intelligence (AI) for electronics, automotive, automation, energy transition, cloud, and data analytics will further augment the long-term outlook of technology. This phenomenon will intensify the revenue upside and profitability among global technology industry leaders as demonstrated by the bifurcation in revenue directions between Big Tech firms and the broader markets over past cycles.

Notably, the future across various technology verticals is projected to grow from strength to strength, boosted by the dynamic permeation of AI-powered functions and devices, and backed by the innovative nature, closely knitted supply chains, and strong pricing power of technology firms.

A bright future powered by AI. The protracted upside potential of technology industries continues to be driven by sustained demand for multi-functional chipsets, an increased number of microprocessors required to power an immense volume of devices, and proliferation of more complicated software applications. The secular permeability of AI and development of AI-embedded devices have thus far proven to be irreversible trends.

This will drive a significant transition to cloud and software-as-a-service (SaaS) that offer users cost-effectiveness, efficiency, scalability, and reliability. Against this backdrop, the total addressable markets (TAM) for AI and software are projected to reach USD2.6tn and USD1.8tn respectively by 2032; a significant size by any industry standard.

Maintain conviction call on global technology. Notwithstanding their ongoing outperformance, we maintain our conviction on the outlook of global technology leaders. Factors supporting our constructive views include:

  1. Earnings of Big Tech firms are projected to grow at mid-to-high teens over the next two to three years, outpacing other sectors. This is reinforced by innovation, strong end demand, pricing power, and broadening of device adoptions.
  2. Technology firms have amassed huge amounts of cash over the past four to five years. For example, Big Tech firms have collectively accumulated a cash equivalent of more than USD200bn in their balance sheets. This war chest will enhance their ability to perform accretive acquisitions and weather market headwinds.
  3. Companies can circumvent policy restrictions by setting up overseas capacity and supply chains to serve local demand using technology that is less susceptible to such limitations.
  4. Similar to the market conditions of 2020, the expected rate cut by the US Fed will release more liquidity into the markets. These funds are anticipated to seek opportunities which offer sustainable long-term returns, where technology sits near or at the top of the list.
  5. The enormous TAM and growth potential are evidential of the prominent investment outlook of our secular technology themes.
  6. The rotation among sectors is a common feature across capital markets but we expect the core investment positions to remain with technology, supported by compelling fundamentals and tailwinds.

The recent market volatility provides a good opportunity for investors to re-engage technology leaders. The valuations are justified by resilient growth quality and earnings tailwind as the AI-driven breakthrough is all but in its early innings.

Anchoring the CIO I.D.E.A. The CIO I.D.E.A. framework, positioned at the growth side of the CIO Barbell Strategy, is well placed to benefit from these secular uptrends. This strategy identifies and invests in secular investment themes revolving around winners in Innovators, Disruptors, Enablers, and Adapters. Besides having technology as a core part of the strategy construct, the CIO I.D.E.A. is essentially a diversified, growth-centric strategy which also comprises of high-quality secular themes of energy transition, quiet luxury, life sciences, space, and digital media.

Since its inception, the strategy has delivered impressive returns across cycles by outperforming the composite of leading global technology funds and demonstrated resilience against global equities.

The recent development will not deter the steadfast future of technology. When the dust settles, investors will once again focus on investment opportunities which have a proven track record of delivering consistent and impressive returns and are less susceptible to political disturbances.

Figure 1: Technology – Strong earnings and compelling shareholder returns

Source: Bloomberg, DBS



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