Tech Sector Insights with Ivana Deesa

Jun 24, 2024

Lecture Notes: Tech Sector Insights with Ivana Deesa

Key Topics Covered

  • Current leading companies: Microsoft, Nvidia, Apple
  • Market trends and predictions for megacap and midcap stocks
  • Valuation insights in the tech sector
  • Midcap software stocks
  • Impact of interest rates
  • Cyber security and future investments

Mega cap vs. Midcap Stocks

  • Mega cap companies: Microsoft, Nvidia, Apple
    • Currently leading the market in terms of valuation.
    • Megacaps drove the first leg of the market upturn this year.
  • Midcap stocks:
    • Expected to perform better in the second half of the year.
    • Especially looking at opportunities in the software space.
    • Valuations in midcap software stocks are still at reasonable levels compared to mega caps.

Valuation Trends

  • Mega caps: Valuations have expanded.
    • The recovery driven mostly by earnings is now seeing some valuation expansion.
  • Midcaps:
    • Valuations are close to bottom levels seen during interest rate spikes in 2020 and 2022.
    • Stocks in the software space have depressed valuations and are lagging behind semiconductors.

Software Sector Insights

  • Investment follows a cyclical pattern:
    • Hardware investment: First phase after a downturn.
    • Application investment: Follows hardware; includes software tools and applications.
  • Interest rates:
    • Need to stabilize for positive investment impact in software stocks.
    • Key interest rate benchmark: 10-year yield needs to stop rising.

Investment Focus Areas

  • Cyber Security:
    • Fundamental importance due to increasing cyber attacks and ransomware incidents.
    • Exciting area for current investment.
  • Long-term Focus:
    • Infrastructure level: Cyber security and data infrastructure over the next year.
    • Application layer: Public-facing applications to be considered further down the line (3-year outlook).
    • Examples: CRM systems, Salesforce optimization tools, Tesla's autonomous driving.

Industry Commentary

  • Palantir:
    • Recently downgraded due to high valuation concerns.
    • Current focus on hardware investment means delayed impact on software revenue gains.
  • General AI and Software Tools:
    • Gen AI revenue increases have not yet materialized.
    • Importance of cyber security and data infrastructure as foundational tools for AI advancement.

Conclusion

  • Near-term investment: Focus on midcap software and cyber security sectors.
  • Long-term outlook: Application layer developments around CRM and AI implementations.