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US tech stocks: stop kissing frogs

Former City analyst Robin Hardy continues to explore the world of tech. This week he asks if the sector's most prominent companies still offer value.
March 29, 2022

Many people investing in technology want to hit the big one, find the next Apple, Microsoft or Amazon. It’s easy to see why given the returns early investors made in these stocks. Apple (APPL) has grown 243,000 per cent since 1980 and Microsoft (MSFT) 309,000 per cent since 1986. More recently Alphabet (GOOGL) would have made 5,000 per cent  (since 2004) while Meta/Facebook (FB) in comparison looks like a low returner growing only 416 per cent since its 2012 IPO. Even index trackers would have made big returns: the Nasdaq has risen 7,870 per cent since 1982. 

Trying to pick the small handful of stocks that might make such enormous returns is very difficult, but investors can easily save themselves the hard work – the existing tech giants still have a lot of potential to deliver very attractive growth. On top of this, most have been through a sizeable shakeout in the last six months, lowering valuations. A number of these stocks have share ratings that are almost mainstream: Apple’s price/earning (PE) ratio is 27 times, while Walmart not so much lower at 21 times. 

The big names in tech still have big ambitions. The problem is nobody knows what the next big thing(s) will be – nextGen mobile devices, VR, AR/Meta, AI/machine learning, self-driving cars? The big names don’t know either so they are casting their nets wide, playing an 80/20 game, but are doing so while still operating vibrant, fast-growing, scalable, profitable, cash-generative cores that will allow them to explore these new fields. Investors can more confidently expect high growth without having to cross fingers and hope that their start-up/small-cap pick or picks work out. 

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