The Buying Opportunism In The Fall Of Technology Shares
An incredible opportunity is presented when the market falls, something which is happening with tech shares. For investors this is something that can help gain exposure to persistent growth and returns.
There are three thematic pillars in growth extending across the technology industry globally that can be identified. Technology enablers, Direct-To-Consumer business models and enterprise’s digital transformation
Technology Enablers
The Canadian Shopify is an example of a technology enabler which businesses can gain a one-stop service when trying to found online shop fronts, deal with evolving challenges (e.g. security threats) and obtaining consumer data insights. Therefore, this creates an easy foundation for businesses to be able to quickly set themselves up online, whilst still keeping a direct consumer relationship with their brand. This differs from using a third-party website which consolidates an indirect relationship when selling goods. For inventors, disruptors and incumbents, tech enablers offer opportunities. Opportunities which keeps market competition alive as well as achieving scale.
Direct-To-Consumer Business Models
Direct-To-Consumer (DTC) business models allow sellers to establish consumer relationships whilst bypassing intermediaries, steering clear from extortionate fees or investments necessary for a gain of potential customers. Through a superior personalised service, DTC channels allow companies to build customer loyalty. In addition to this, DTC channels also allow companies to grow their target markets leading to a projection of sales and marketing presence across borders with little transactional costs.
The DTC business model inherently revolutionises the competitive landscape in multiple industries, from electric vehicles to entertainment to retail. This can be exemplified when it comes to e-commerce as a share of global retail sales growing to 18% in 2020 - where it was only 13.6% the previous year in 2019. It was a symptom of the COVID-19 pandemic health precautions and restrictions/lockdowns which forced people to stay at home. These figures detail the largest one-year increase in six years - this is something which can be seen as a revolutionised baseline for continued growth in the sector.
Enterprise’s Digital Transformation
The archetypal shift in enterprise’s digital transformation is depicted in the rise of cloud services which can be akin to the internet’s advent. Public cloud revenue is forecasted to grow at an annualised average rate of almost 25% to reach $679 billion in 2025.
The theme of investment in technology shares is the latest iteration of a long-standing trend. A proceeding shift towards next-economy industries at the expense of old-economy industries is revealed by United States capital spending. The total of capital spending assigned to old-economy industries from the early 1980s through early 2020 has declined from more than 70% to just below 50%. This is all whilst the capital spending on next-economy industries has more than doubled from the mid-20% range to just over 50%. Capex spending is higher than the overall market, even among the scalable platforms. Technology infrastructure is a core factor of future revenue and earning growth.
The new world of enterprise’s digital transformation has been emphatically revealed by the shock of the COVID-19 pandemic. Companies are now evolving to asset-light balance sheets which leads to higher margins and more sustainable profitability - a trend which is seen across industries. Therefore, this is why there is now buying opportunism in the fall of technology shares due to this developing secular change providing grounds for extraordinary opportunity to get exposure to long lasting growth and returns.
By Saffron-Lucia Gilbert-Kaluba