I recently wrote a column on Forbes detailing my predictionsn for tech stocks in 2020. Knowing what trends will prevail is especially important as this earnings season will mark the fourth consecutive quarter of year-over-year of net income declines. When taking into consideration buybacks, which help to reduce companies’ shares, the S&P 500 could post 0.6% EPS growth in all of 2019 compared to 2018’s 23% increase in EPS.
Therefore, it’s important to choose investments wisely as we continue to maintain record highs.
Here are the main points I covered – please read the full article on Forbes for a more complete analysis on each topic noted. Read the full article here.
1. 5G is all about business-to-business services; the consumer story is overblown – Unlike 4G, 5G services will be more diversified thanks to China’s lead in the industry, which means that no single country will have a commanding role in the 5G market.
Furthermore, 5G semiconductors can sell 50% more dollar chip content per device versus 4G. Even as average sales prices on smartphones continue to have downward pressure, profits at the chip level will go up.
2. 5G small caps and suppliers will be winners in 2020 – 4G infrastructure cannot be used for 5G services, which means there will be plenty of profits deep in the tech stack. If you’re interested in 5G stocks, focus on those that solve 5G infrastructure issues, or supply a broad swath of the ecosystem, as they are in the best position to catch the market off guard.
3. Ad companies will outperform the flashier tech companies – Ad companies are the proverbial tortoise; slow and steady wins the race. Magna expects media net advertising revenue to grow by 6.2 percent in 2020, partly due to election ads and the Tokyo Olympics.
4. Cloud companies will continue to grow – Cloud spending continues to outpace IT spending by 400%, and I expect this trend to continue through 2020. Furthermore, forward earnings projections for cloud companies remain healthy despite an earnings recession in other industries. The only challenge here is picking the winners in a competitive field.
5. Semis will not be able to sustain their existing valuations – According to analysts, 50% of semiconductor companies to return to growth in 2020. This is despite nearly all semiconductors blowing through their 2020 price expectations.
6. AI and machine learning companies will decline due to costs – AI and machine learning companies may be exciting (and they do have a bright future) but in 2020, they will face flat growth due to transition costs and capital expenditures.
On the other hand, if you’re planning to invest in these stocks, then keep an eye on the market beating them up in 2020, as you will be able to pick up AI and machine learning stocks cheap relative their forward 5 to 7 year growth potential.
7. Watch out for market miscalculations – Be careful of market speculation. For instance, Netflix dominates on both subscriber numbers and user engagement, yet the stock has had flat gains over the last year compared to Comcast and Disney, which have risen by 30%.
8. Keep an eye on balance sheets – Well-known brands like Uber and Tesla carry a lot of debt, and this will cause problems when sentiments turn.
Read the full article here.
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