What’s driving the trend?
There is an insatiable appetite for an unlimited technological architecture that could apply to all facets of life – including work and play. Over the last few months, consumers may have noticed that the money ordinarily reserved for trying out the new restaurant in town has gone to upgrading their membership with their streaming provider instead.
Tech firms have been the talk of the town on the stock market in recent months. In fact, the five biggest tech companies are bigger than the entire S&P/TSX combined!1 The usual suspects adorn the top five spots: Facebook, with a $645 billion (USD) market cap, Alphabet (Google’s parent company), Amazon, Microsoft, and finally Apple sitting pretty at an almost $1.94 trillion (USD) market cap (results as at November 24, 2020).
Facebook, Alphabet, Amazon, Microsoft and Apple’s market capitalisation compared to the entire S&P/TSX* as at November 24, 2020
(Market capitalisation in USD billions)
CIO Office (data via Refinitiv, as of November 24, 2020). *Using a CAD/USD exchange rate of 0.77. The information and the data supplied, including those supplied by third parties, are considered accurate at the time of their publication and were obtained from sources which we considered reliable. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares and should not be considered as recommendations on the part of National Bank Investments Inc.
Now that the surprise of their performance has waned some, we can clearly see the trends: an increased reliance on cloud computing, signups for video conferencing services2, and, an undoubtable surge in online shopping as people avoid brick-and-mortar stores.
Can investors expect the same performance we’ve been seeing in technological markets long-term?
In many ways, the necessary isolation to combat the COVID curve has simply sped up tech trends that were already emerging. This digital transformation may have arisen out of necessity, but adopting advanced, more efficient technologies was already in the cards for the vast majority of corporations.
That said, companies that have adopted new technological tools are unlikely to toss them out once we’ve gone physically gone back to work.3 What’s at risk is consumer-level tech tools with easily cancellable subscription models. You and your family may no longer require some of the subscription services you invested in to get through the tough times. Do you really need four licenses to log into video streaming services if you’re back at the office, and the kids back at school?
Looks like technology investments will remain on the up and up
The drive towards more accessible, efficient technologies won’t be slowing down any time soon. Post-COVID, users will still:
- want to stay connected through collaborative tools;
- opt for solutions that prioritize cybersecurity and data protection;
- buy online and seek companies with easy to understand e-commerce portals (and that includes goods like groceries and services like notarizing documents); and
- connect with other devices and be able to exchange information through the cloud.4
Advancements in technology will continue to be a key driver of innovation in other industries, too. Technological evolutions on the horizon include:
|Mass product personalization
|Materials innovation and smart wear
|Social media and other connecting applications
|Cybersecurity and data resilience
Investors can potentially leverage these new opportunities in technological investments in this quick-changing economic environment. As companies continue to embrace technologies that help them maintain comparable corporate performance, the digital infrastructure that is being built off emerging demand will be longstanding. Recovering economies can expect to lean on this tech overperformance even after we get the go-ahead to resume normal life.