He says the growth trajectory of some of the largest tech stocks is actually relatively unattractive, “but they have been able to make their profits grow by an accounting technique around how they depreciate their mainframes. Apple used to depreciate them over three years, now they depreciate it over six years, and that has added billions to their earnings in recent years.”
Artificial intelligence
Dowey says that while many of the largest technology companies have quite a mature growth profile, their future growth potential has been enhanced by the advent of advances in AI.
He says: “The pace at which something like ChatGPT has been adopted is much faster than the pace at which the internet was adopted. The scale of the opportunity is massive and it’s happening now.
"Of course there is hype – our view is that the best way to invest in these things is to look at whether the innovation that is coming, will it make something that already happens cheaper, or better or both? I think if you do that, then you can get an understanding of the investment case without the hype.”
Dowey says another feature he looks for when examining the investment case for a company in the technology universe is that it is the principal focus of the business, rather than a sideline.
In this regard he compares the performance of the streaming service Netflix relative to that of Disney. He says the latter has struggled to grow as the company has an array of other operations that also require capital.
Hogarty describes AI as a “wild card” when it comes to constructing a portfolio. He says the effectiveness of the technology is not really in doubt, but his scepticism is “around how it can be monetised.
"At present, while there is a lot of focus on AI, in terms of the stock market it has really benefited the share prices of just half a dozen or so stocks. And those stocks are now at a valuation that we don’t like.”
Chris Iggo, chief investment officer for core investments at Axa Investment Managers, says that “there seems to be a shift in macro momentum” right now, with a growing consensus that interest rates have peaked.
But his current view is that it may be bonds that are the greater beneficiary of this in 2024, rather than equities.
In relation to technology stocks, he says: “Assessing the outlook for technology growth stocks makes the traditional asset allocation decision more complicated.
