Global Big Tech – Quality GARP
Remain constructive on Big Tech and sector leaders
Chief Investment Office16 Jan 2024
  • Big Tech and ecosystem plays demonstrate Q-GARP characteristics
  • Pipeline of innovative and new technologies bolster attractiveness of tech-investing
  • Global IT expenditure remains robust; total addressable market to reach USD5.3t by 2025
  • We remain constructive on global technology, with emphasis on Big Tech and sector leaders
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No stopping this technology train. The CIO Office has long been constructive on global Technology and Big Tech. Despite shaky investor sentiment during the relentless Fed rate hiking cycle in 2022 and 2023, we maintained the view that the Technology sector would make a comeback on the bases of robust earnings growth, balance sheet strength, and structural criticality. We refuted opinions that higher rates would hurt Big Tech through tighter funding conditions, and instead argued that Big Tech companies were mostly sitting on net cash positions in their balance sheets even before the pandemic. Such financial strength has enabled them to weather a higher rate environment, capitalise on high savings rates, and initiate value-accretive M&A transactions. We also contested the notion that higher rates will suppress end demand, citing the emergence of artificial intelligence (AI) as a growth catalyst that would usher in a new growth paradigm for Big Tech companies, many of whom form the structural backbone of this nascent technology. Additionally, Big Tech companies have further cemented their leadership in the past two years, establishing authority in a growing number of tech-related verticals through innovation and inorganic growth. In hindsight, this series of contrarian calls has panned out well, with Big Tech delivering a striking performance of c.+96% from October 2022 to January 2024.

Expensive but not astronomical. Despite general concerns of the relatively higher valuations of Big Tech and Technology companies compared to the broader market, we believe that such valuations are largely justified. Quality investments that display both robust growth prospects and strong defensive moat characteristics — as many of the Big Tech names do — do not come cheap but are worth the price. This combination of growth and true safety is something that is rare in equity investing, and accordingly the markets have priced in a significant, but in our view reasonable, premium for such companies.

We believe Big Tech will continue to be a bright spot within the Equity space, buoyed by the following catalysts: Semiconductor recovery on the horizon; resilient global IT spend; strong revenue and earnings backdrop, solid balance sheet and shareholder returns; room for expansion in growth-adjusted valuation; and growing opportunities across myriad of verticals.

Figure 1: Big Tech has beaten the market and looks poised to continue its outperformance


Source: Boomberg, DBS


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