Tech has evolved strongly since the TMT bubble – and now the power of consumer-driven tech firms is underpinned by strong earnings and revenue growth, not wishful thinking and speculation.
Meanwhile, value and growth and other ‘factor’ models have failed to capture intangibles, such as the power of AI and access to data. The acid-test of quality in the depth of the crisis revealed that companies more attuned to the demand dynamics of a virtual world were the winners.
The term ‘tech’ is no longer fit for purpose. Tech is not a sector anymore; in many industries, company growth is now constrained by the degree to which tech exists in business models – across every sector. For example, even a cosmetics firm like L’Oréal has a strong tech component. Their e-commerce channel is growing very fast and as importantly, they have known how to attract younger generations with apps that use augmented reality for make-up.
For a long time prior to the crisis, we focused our equity stock selection on quality global players with high margins and rock-solid balance sheets harnessing strong tech attributes and consumer interfaces – for example, Amazon, Microsoft and Alphabet. Digitalisation of society is leaping forward, and these companies will benefit disproportionately.
Trends like flexible working arrangements, online meetings and home shopping delivery have been cemented by the crisis. Long after lockdown is lifted, we will see how deeply these behaviours have been engrained. We believe the virtual world we will see post crisis will look very different than anything we have experienced before.