- Waning US exceptionalism has brought the tech party to a standstill as investors scramble to re-position themselves in less crowded trades
- Despite the sell-off, Big Tech has continued to deliver strong results, with majority posting beats on both top and bottom line in the latest earnings season
- AI is a multi-year trend that will drive growth for various sectors and verticals; it is not limited to language models as a use case
- Investors should continue to maintain exposure to technology for secular growth, embracing the DBS I.D.E.A. investment framework while diversifying into non-tech quality growth plays for added portfolio resilience
Recent weakness warrants revisiting. The past month has been volatile for US equities to say the least – tariffs and growth fears have spooked investors and prompted a broad-based reallocation of risk capital globally. During the month ended 14 March, the Dow Jones and S&P 500 declined 6.9% and 7.8% respectively. The technology sector in particular was hit hard as the emergence of DeepSeek posed an existential challenge to incumbent industry leaders and their current model of AI development (which prioritises scale in investment and computational power). This caused the tech-heavy Nasdaq composite to shed 11.3% during the same one-month period (ending 14 March). Big Tech was not spared either, tumbling 14.1%.
In summary, the combination of tariff uncertainties, waning US exceptionalism, and DeepSeek's "Sputnik moment", have brought the tech party to a standstill as investors scramble to re-position themselves in relatively less crowded trades.
Beware excessive hype (and pessimism). While there certainly is merit in diversifying from crowded trades amid volatile markets, it is perhaps just as important to remain rational and avoid being overly swayed by prevailing sentiment, be it in the direction of exuberance or pessimism. Looking at the most recent earnings season, one might be surprised to note that many companies in the Big Tech ecosystem did admirably.
Majority posted beats on both revenue and earnings; the only exceptions were Telsa and Alphabet. Nonetheless, Alphabet did manage to increase its 4Q24 revenue and net income by 11.8% and 28.3% respectively on a y/y basis, suggesting that the company continues to enjoy robust growth prospects, but is perhaps just falling short of investors’ lofty expectations. Macro uncertainties notwithstanding, the earnings growth for Big Tech and the wider technology sector remains encouraging for now, with both expected to achieve earnings growth in the mid-to-high teens region in both 2025 and 2026. Of significance, most industry leaders are providing positive guidance, further strengthening the outlook.
Language models are not the be all of AI. There is no doubt that AI was launched into mainstream prominence thanks to large language models (LLM); in fact, many equate the start of the current AI boom with ChatGPT’s release to the public in Nov 2022. However, it is crucial to note that language models are simply one of many “wrappers” for the underlying AI technology; we have to be cautious not to erroneously equate AI with LLM. Beyond the immediate ecosystem of semiconductor & integrated circuits, cloud computing, and software applications, AI has a myriad of other applications in other non-technology related fields such as cybersecurity, financial services, healthcare, and energy as well.
We believe that AI will continue to further embed itself in these areas, and drive monetisation and growth opportunities for companies that manage to insert themselves in this virtuous cycle. We cover this in greater detail in our special three-part series titled AI Commercialisation to Drive Next Leg of Tech Boom:
- Part 1
- Part 2
- Part 3
Stay with technology but adopt a holistic portfolio approach. While the sentiment on AI and related supply chains may have hit a stumbling block for now, we believe it is a multi-year and even multi-decade trend that still has plenty of legs to run. As such, we continue to advocate for exposure to US Big Tech companies and industry leaders for long-term secular growth. Within the technology space (not just semiconductors), remain diversified across a wide range of verticals anchoring on the DBS I.D.E.A. investment framework (Innovators, Disruptors, Enablers, Adapters), and stick with trend setters and price makers with established profit records. At the same time, we believe investors should also look to diversify growth plays beyond just US technology; seek opportunities in US healthcare and consumer staples, Europe industrials (defence sub-sector) and financials, and Asia platform companies and technology leaders amid the uncertain macroeconomic backdrop.
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