Technology stocks have been hot this year. Is it time to lock in profits or risk getting burned? On our latest podcast, seasoned tech investor Vinod explains why he sees continued opportunity in the sector.
It took the tech-heavy Nasdaq composite index 15 years to reclaim the 5,000 mark after the painful bursting of the dot-com bubble in the early 2000s. Today, the index sits around 8,000, an 80% increase in just five years. Tech stocks are back in the headlines as the sector to watch. But with euphoria around tech having backfired once before, is it time to take the money and run?
Kaan spoke with Vinod, MEA Managing Director and technology sector lead for Aura’s Fundamental Active Equity group. The two discussed what makes today different from history and why tech is a breeding ground for innovation.
Kaan: How does today’s tech sector differ from what you and I invested in two decades ago?
Vinod: It’s this order of magnitude change within 20 years. In 2000, there were half a billion internet users. There are now close to five billion. There was really one computing platform, the PC — a count of a couple hundred million machines. Now, there are PCs, smartphones, IoT (Internet of Things), cloud — over tens of billions of devices. We went from 2G to 5G. That’s three generations of cellular. The transistor density, which measures the performance density of the transistors in a silicon chip: Tens of millions back then, now tens of billions. In totality, this has translated into an explosion in the number, diversity, dynamism and sheer ambition of companies. That’s unprecedented.
Kaan: Take us beyond FAANG (Facebook, Amazon, Apple, Netflix, Google). There must be other companies that are a part of this bigger tech movement.
Vinod: For the last 10 to 15 years, FAANG has personified the market capitalization of tech. I’d add Microsoft, Alibaba and Tencent and call it the Super Eight. But tech is a lot more than these eight companies. There are nearly 1,300 public tech companies globally that I’m looking at as well as hundreds of late-stage private companies. You’re talking well over 1,600 companies in tech beyond these Super Eight.
If you look back at the last three decades, each has generally been defined by a new era. In the 1990s, it started with the mainframe and a lot of Japanese companies. In 2000, it was the PC and the fiber optic boom, telecom companies. In 2010, it was the smartphone and internet companies. Today, it’s about cloud, and we also see the emergence of some large Chinese companies. Given the diversity of tech companies out there, something new is going to emerge. There is no doubt about that. History has shown there will be new leadership.
Kaan: How close are we to the broad deployment of 5G, and is there a way now to invest in the opportunities that 5G is going to create?
Vinod: I think 5G deployment is imminent. We started at the end of last year with Korea and Japan. This year it’s the U.S. and China. Later it will be Europe, and then lastly, emerging markets.
I like to work backwards and deconstruct the opportunity. I ask, when will we have a 5G phone and do something with it? I think that comes in earnest at the end of next year. Working backwards in order, if that’s when real consumers get access to 5G phones at scale, when can you start investing in this? Actually, it started last year. We need to invest in what I call the first phase ― the building of the infrastructure that supports 5G. And then you can have the phones, and then applications come on top.
Kaan: If you had to sum up the tech sector in one sentence, what would it be?
Vinod: I’d say tech is about creative destruction. I think tech is like biology, like nature. You grow fast, you mature and then you die — and there’s always a new company coming to take your spot. In fact, in the last five years I’ve tracked over 200 IPOs in tech globally. History has shown us that there will always be new companies. And so I think it’s my duty to continue to seek out and find those companies.
Make sense of financial markets with The Jeeranont, Aura’s bi-weekly podcast that discusses our perspective on timely market events and investment ideas. Subscribe to The Jeeranont podcast on iTunes, Spotify or wherever you get your podcasts.
Investing involves risks, including possible loss of principal. Investments in technology industries may be affected by limited product lines, markets or financial resources. Technology industries are rapidly changing and stocks of these companies may be more volatile than the stock market in general.
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