Following the overvaluation of tech products during COVID-19 lockdowns, the sector has returned to normalised levels of demand, according to the asset management firm.
Platinum portfolio managers Alex Barbi and Jimmy Su expressed a confident outlook for the technology industry in 2023, despite the challenges faced by tech investors in the previous year.
After technology products experienced booming demand during the height of the pandemic, the industry reversed to a normalised pattern of consumption leading to a derating of those stocks.
“The end of the cycle has ushered in a narrative change. After two years of excesses and bubble-like valuations, we think the market will go back to valuing tech companies based on the strengths of their business models and their long-term potential earnings power,” Su explained.
He noted that technology companies were down by 50% due to the slowing in sales growth as investors reassessed the assets’ long-term viability.
Barbi also recognised: “When we invest in technology stocks, we have to increasingly consider geopolitical risks”.
This primarily included chip wars between China and the US, who were racing to dominate the production of advanced semiconductors.
“In the long-term, we believe that there would be a decoupling between Western-based companies and Chinese-based companies in order to protect their IP and technologies,” Barbi explained.
The industry was experiencing further consolidation in US-based companies, causing Chinese competition to see decreased demand.
Looking forward, Su identified power semiconductors used in electric vehicles as an area for investors to eye out.
“As the adoption of electric vehicles increase around the world, we see the demand for power chips grow independant of vehicle product volumes due to content growth,” said Su.
Companies manufacturing these chips could see increased demand over the next five to 10 years, such as Infinian and STMicroelectronics.
Moreover, firms producing memory chips known as dynamic random-access memory (DRAM) used in electronic devices and cars were also attractive opportunities for investors. The asset management firm noted Micron Technology and Samsung Electronics as key examples.
