US Technology: Superior bottom-up catalysts
Robust corporate earnings validate our secular growth view. Since the launch of our CIO Insights in 1Q18, the DBS Chief Investment Office has been making high conviction Overweight calls on US Technology. Our positive view stems from the following factors:
Traditional industries are being disrupted by the rapid proliferation of e-Commerce and the Internet of Things; US Technology will be a geared beneficiary of this wave.
Unlike the dot-com bubble, the current rally is backed by strong cashflow generation as Tech companies possess strong bargaining power, robust profit margins, and
Emerging technological development in the fields of robotics, 5G, and Artificial Intelligence will propel future growth momentum.
As evident from the points above, our enthusiasm for Technology is based on our positive perspective on the sector that the trends are long-term and irreversible, and the recent slew of positive corporate earnings data reinforces our conviction.
“Amazing Amazon (AMZN US)”: Tech earnings smash consensus forecasts despite COVID-19 headwinds. The US reporting season is underway and positive earnings surprise for Tech stands at 91.67%. What is noteworthy though, is the blowout performance of two bellwether companies in the space:
Amazon.com Inc (AMZN US): Amazon (AMZN US) reported a 40% y/y surge in top-line revenue amid sharp revenue growth in: Online Stores (+48% y/y), Third-party Seller Services (+52% y/y), Amazon Web Services (+29%), and Subscription Services (+29% y/y). For 3Q, management is guiding revenue of USD87-93b (vs consensus forecast of USD86.4b).
Apple Inc (AAPL US): Apple (AAPL US) reported an 11% y/y jump in top-line revenue amid sharp revenue growth in: Mac (+22%), iPad (+31%), Wearables, Home, and Accessories (+17%). iPhone sales, at USD26.4b, is also ahead of consensus forecast amid strong demand for the more affordable iPhone SE.
Robustness of Technology stocks validates the resilience of the CIO Barbell Strategy. The strong performance of bellwether companies validates our positive view on Technology. More importantly, it also reinforces our conviction on the CIO Barbell Strategy as it contains significant exposure to the sector. Despite the headwinds posed by the COVID-19 pandemic, Tech companies have managed to display strong revenue growth, and this underlines their resilience.
Figure 1: Robust performance from bellwether companies despite pandemic
Source: Bloomberg, DBS
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