By Alex Tedder, Head of Global Thematic Equities and Nell Vellam, Global Technology Sector Specialist at Schroders
Big U.S. tech stocks cheered A significant revaluation in 2023 And investors are wondering what the future holds. We analyze some of the challenges, but we also analyze reasons for optimism.
One of the notable features of the stock market in recent years has been the success of large US technology companies. Their profits have been so stellar that analysts have grouped them into names like “FAANG.”“tech giants” and, more recently, “Magnificent 7” or “Super-7” (Apple, Microsoft, Amazon, Alphabet, Netflix, Nvidia and Tesla).
Good progress in recent months after a poor year 2022, Part of the impact is artificial intelligence (AI).. ChatGPT's debut in November of that year created new excitement for the supposed companies
AI winners. A total of seven spectacular stock market performance has been created A stratosphere reassessment in 2023: Almost 80% overall.
However, investors should watch Beyond 'Super 7' Consider each action separately.
Before going into the details, it is important to make a few observations. Firstly, names like 'Super 7' have a major drawback: They are institutions that create false unity. While there is some overlap – for example, the competition between Amazon, Google (Alphabet) and Microsoft in cloud services – there are also big differences between them.
Dynamics of the Enterprise Software Market (Microsoft) It is very different from electric vehicles (Tesla)., smartphones (Apple) or social networks (Meta/Facebook). It's easy to overlook the nuances of companies when using generic rankings.
A second thing to remember Large stock market capitalization can be justified by broad grounds. It may seem obvious, but these companies are the most profitable and biggest revenue earners in the world. For this reason, their stock market valuations superiors On average.
Finally, assign everything These stock gains are a detriment to the excitement surrounding AI. While this is a significant setback for some of these companies (like Nvidia), their recent strength cannot be attributed to AI alone.
The shift to the cloud offers enormous growth opportunities
Cloud services will continue to be a strong trend for years to come. Outsourcing data storage and management benefits, basically Cost, flexibility and securityEnterprises will continue to migrate to the cloud in the future.
Amazon estimated in April that 90% of global IT spending is on local, enterprise-owned hardware, known as on-premise solutions. There is a huge growth opportunity for companies with the financial and technological capacity to provide the necessary infrastructure for that transformation.. As expected, the largest technology groups are the dominant cloud service providers through their subsidiaries AWS (Amazon), Azure (Microsoft) and GCP (Google) and will continue to be market leaders.
In addition to their cloud businesses, Microsoft, Amazon and Google are among others Significant growth opportunities. Microsoft's suite of business software products are widely used by companies around the world.
In Amazon's case, it is A dominant e-commerce business is now monetized, but it should show an improvement in profitability as significant investments made in recent years have been reduced. Google, for its part, has a strong position with Google Search and YouTube, and is likely to continue to offer innovative advertising services to customers. Meanwhile, Meta faces the challenge of running a global social media business in a volatile world, as well as lingering concerns about the company's management structure. However, Meta has invested Sensible and product innovations in the last two years.
The other members of the 'Super 7' – Apple, Tesla and Nvidia – face very different challenges. Apple is an extraordinary company that continues to deliver some of the best consumer products in the world. however, Their end markets are maturing, esp
Everything in the smartphone industry, penetration rates are high. Apple, on the other hand, generates enormous cash flow, much of which is returned to shareholders through buybacks. In addition, the company is investing significantly in its growing and highly profitable services business (App Store, Apple Pay, Apple Music and TV, Apple News, and Apple Care).
Tesla has led the way in shaping the electric vehicle (EV) industry and has significant competitive advantages due to its scale, market-leading manufacturing processes and software solutions. however, May be affected by price pressure Competition in the EV industry has intensified. On the other hand, Nvidia is one of the main drivers of developing AI.
The company's GPUs (graphics processing units) are best-in-class products capable of handling complex calculations that require large language models. Boost generative AI applications. However, the sustainability of the company's growth profile is uncertain.
Overall, while it's tempting to move on from the 'Super 7' after such a strong year, we think it's right to take a more nuanced approach. The group is diverse, but United by a common class of solid business owners In expanding areas.
Content sponsored by Schroders
The views expressed herein are those of Alex Tedder, Global Technology Sector Specialist at Schroders, Head of Global Theme Equities and Paddy Flood, and do not necessarily represent the views expressed or reflected in Schroders Communications, Strategies or Funds. This document is for informational purposes only. The information contained herein does not constitute an offer or solicitation to buy or sell any security or related instrument herein. Opinions and information contained in the document should not be relied upon when making investment and/or strategic decisions. The information contained herein is believed to be reliable, but Schroders does not guarantee its completeness or accuracy. Past performance is not a reliable indicator of future results. The price of shares and the income derived from them may rise and fall and investors may not get back the principal amount invested. Issued by: Schroder Investment Management Limited, Spanish Branch. Published by Schroder Investment Management (Europe) SA, Sucursal en España, c/ Pinar 7 – 4th floor.28006 Madrid – Spain. Registered with the National Securities Market Commission (CNMV) with number 20.