The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. For professional or institutional investors only.
In many ways, the COVID-19 crisis has fundamentally altered the way we live and work (and continues to do so). From an investment standpoint, that has been a big catalyst for long-term value creation across certain sectors. The technology sector is a notable case in point.
A day in the life of a tech analyst
To illustrate, consider how my own life has changed over the past several months:
- I do my job from my home office in my living room these days — investing, researching, collaborating. The transition to working remotely has been seamless.
- Not only am I just as productive as I was in the office, but I save time and money by not having to commute every day.
- Meanwhile, I can “go to” a doctor’s appointment without leaving my house, using telemedicine capabilities.
- I can do all my banking online, with the same functionality as if I went to a physical branch location.
- I can shop online using my mobile wallet and have my groceries or other purchases delivered to my door.
- After calling it a day, I can spend the evening watching a movie of my choice or playing a video game.
All of this is enabled by technology. None of it is new per se, but what has changed on the back of COVID-19 is the speed and alacrity with which consumers and businesses have embraced various technologies. New cohorts of users that would otherwise have taken years, if not generations, to get fully “on board” are already there. In short, technology has swiftly pervaded our lives. That, in turn, has magnified and accelerated investment opportunities in the sector.
Five sector trends worth watching
So where are those opportunities? There are several tech trends that were already in place pre-COVID-19 that have gained traction amid this crisis and look poised for continued growth in the period ahead:
- Cloud adoption. The cloud-computing industry has enormous long-term potential. Having a largely remote workforce in recent months has fueled the trend, but transitioning technology from mainframe onsite computers to the cloud is still very early stage. The likelihood that the “work-from-home” phenomenon will have some staying power post-COVID-19 bodes well for cloud computing.
- Financial technology (fintech). We are bullish on the ongoing “digitalization of cash” and the growth of fintech overall. The rollout of contactless cards and the adoption of branchless banking are developments with promising upside, not to mention technologically expanding the banking industry to the two billion people worldwide who are currently “unbanked.”
- Online commerce. This one is a no brainer. Online commerce has been steadily growing at the expense of physical retail for many years now, but COVID-19 has fast-tracked the trend and introduced new use cases — for example, food delivery and pharmaceuticals — where people have changed their shopping behavior as a result of the pandemic.
- Artificial intelligence and machine learning. I believe companies with access to the largest and best datasets, coupled with the ability to monetize their data, will have a distinct advantage in being able to more effectively target customers and prospects. Again, this is nothing new, but it is becoming more important in today’s online world.
- Semiconductors. There is a long-term structural growth opportunity for semiconductors and other more cyclical parts of the technology ecosystem that, in the short term, are being somewhat held hostage to global trade policies. Once that uncertainty begins to lift, I believe the opportunity set will become increasingly attractive.
The rate of transformation in the technology sector has accelerated rapidly due to COVID-19. The CEO of one of the biggest companies in the world was right when he said recently that we underwent two years of digital change in just two months. And the growth drivers behind the change are likely here to stay. It therefore seems clear to me that, in order to succeed going forward, every business needs to be a digital business.
This presents a fertile backdrop for long-term technology investors. As one such investor with 20 years of experience in the space, I believe the key to generating alpha is to extend your time horizon. If you find a company with a durable business model and a long growth runway, don’t fret too much over next year’s earnings. Think about what the growth rate — and the stock price — might look like in five or 10 years.