Technology companies have been a driving force behind the
U.S. stock market’s recent record rally, and despite mounting evidence of
stretched valuations the sector remains a top pick for investors expecting a
wave of capital expenditures by U.S. corporations.
Corporate tax cuts and reduced regulations planned by
President Donald Trump will give companies reason to spend more on cloud
computing, factory automation and smart connectivity that will directly benefit
Silicon Valley, many on Wall Street believe.
“The tax cuts are going to promote business investment
across all industries, and the business investment is largely going to be in
technology,” said Doug Cote, chief market strategist at Voya Investment
Management in New York.
Strong performances from big names including Apple and
Facebook have helped make technology the strongest S&P 500 sector so far
this year, surging 10 percent compared to the broader index’s 6 percent rise.
In the past month, investors have poured $325 million into
to the U.S.-listed Technology Select Sector SPDR Fund, according to ETF.com,
which tracks fund flows.
“We may be due for a little bit of a pullback, but we’re
still buyers on weakness because we like the longer-term outlook over the next
two to three years,” said Terry Sandven, chief equity strategist at U.S. Bank
Wealth Management.
The proliferation of smart, connected devices in homes,
factories and stores is leading to the collection unprecedented amounts of data
and creating demand for more computing power to analyze it.
Spending on cloud computing will grow by 21.5 percent a
year through 2020, almost seven times as fast as overall IT spending, according
to a recent estimate by market research firm IDC.
Priciest
of the pricey
Improved employment and consumer confidence have also been
behind investors’ optimism about tech, helping offset concerns about lofty
valuations.
After an eight-year U.S. stock market rally, nearly all
sectors are trading at earnings multiples above their long-term average, but
none more so than technology, according to Thomson Reuters Datastream. The tech
sector’s strong performance has left it trading at 17.9 times expected
earnings, compared to its 10-year average of 14.5 times expected earnings.
The S&P tech sector’s price-to-earnings multiple has been
above its own long-term average for about a year, and during that time the
sector has surged about 28 percent.
Tech bulls believe earnings momentum is growing for the
sector. S&P 500 tech earnings expanded 12.3 percent in the fourth quarter,
more than any other sector, according to Thomson Reuters data. Analysts on
average expect 13.6 percent growth for the March quarter.
Recent upbeat quarterly reports and commentary from
Broadcom, Skyworks Solutions, and Applied Materials suggest semiconductors are
poised for strong growth, said Wedbush trader Joel Kulina.
Micron Technology jumped 3.5 percent on Friday after
raising its 2017 forecast the day before, helped by healthy demand for its
memory chips.
“I can’t remember a time when we’ve seen this much excitement,”
Kulina said. “Semiconductors aren’t as cyclical as they used to be, where
quarters were driven by PC demand. Now it’s automotive, it’s data center,
industrial automation.”
Hi. I’m Sana ur Rehman Designer of This Blog. I’m CEO/Founder of Pak Zest. I’m Creative Art Director, Web Designer, UI/UX Designer, Interaction Designer, Industrial Designer, Web Developer, Business Enthusiast, StartUp Enthusiast, Speaker, Writer and Photographer. Inspired to make things looks better.
0 comments:
Post a Comment