UBS says these 6 Club stocks are exposed to key tech trends — and worth owning
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The technology sector covers such a broad swath of industries — from semiconductors to software to electronics — that figuring out just where to invest can be daunting. UBS analysts have an opinion: They say three key trends in technology are on the verge of exploding — artificial intelligence, big data and cybersecurity — and that investors should get some exposure to them. We couldn’t agree more and are pleased to see UBS call out several of our Club holdings as stocks to own. The analysts at UBS say the combined revenue from these three trends should jump to $625 billion in 2025, from $385 in 2020 as both companies and governments increase spending on automation, analytics and security. In their view, AI will be the fastest grower, at 20% annually, while big data and cybersecurity are expected to growth at average rate of 8% to 10% per year. But UBS says what the latter two lack in growth, they make up for in their more defensive nature; cybersecurity and analytics are increasingly needed regardless of the macroeconomy. We have long been bullish on these trends and believe exposure to them over the long term is absolutely crucial for investors. That’s a big reason behind why we are willing to stick with some of our high-quality tech names — including Microsoft (MSFT), Alphabet (GOOGL), Meta Platforms (META), Amazon (AMZN), Salesforce (CRM), Nvidia (NVDA), Advanced Micro Devices (AMD) — through this choppy economic downturn. Big data analytics and AI-driven automation are integral to increasing efficiencies and reducing costs at companies, so they not only receive priority when it comes to budgeting but also serves as a deflationary force over time. As for cybersecurity, in world where data is fast becoming the most valuable currency in the world, the ability to protect that data is paramount. The growth is not limited to companies. The analysts say the U.S. government is investing heavily to maintain the country’s leadership in core technologies like software and semiconductor design, including patents. They note the Chinese government has also initiated high-profile plans to develop its homegrown capabilities in these fast-growing areas, including the “Made in China 2025” plan and the “Next Generation Artificial Intelligence Development Plan.” Other nations have similar ambitions, the note, including Germany (“AI Made in Germany”), the European Union (“Coordinated Plan on Artificial Intelligence”), Japan (“Artificial Intelligence Technology Strategy”), and Singapore (via its “Smart Nation” and “Digital Government Office”). How to capitalize on these trends? According the analysts, investors should focus on incumbents over disruptors; incumbents characterized by dominant market share, robust technological moats with strong economies of scale, steady growth rates, and solid balance sheets. UBS’s basket of stocks is now 90% incumbents. Members already know why we love many of these incumbent names and are willing to ride out the near-term ups and downs in pursuit of what we think is significant long-term upside. But here is what the analysts had to say about the names that found in our portfolio: Alphabet : “We believe Google remains the preeminent franchise in internet search and advertising. Revenue (along with the digital ad industry) recovered strongly in 2021, setting up tough comparisons in 2022. Beyond this tough comparison, we see growth longer-term solidly in the double-digits on higher monetization and YouTube, and share gains in cloud computing. Additionally, we expect continued cost discipline. Finally, we believe Google has interesting options in areas such as healthcare, autonomous driving, and artificial intelligence. Key risks to our view include regulation, competition, and operating expense control.” Advanced Micro Devices : “Advanced Micro Devices (AMD) commands a unique positioning, with a well-established portfolio in both the x86 microprocessor and graphics processing unit (GPU) segments. Its leading semi-custom business, which provides customers the flexibility to tailor combinations of processors and GPUs according to devicespecific requirements, is well-placed to capitalize on the structural growth in the AI, data-center and console markets. Meanwhile, AMD’s near-term momentum is robust with strong data-center growth, healthy notebook demand and new product innovations. Given the rising demand for AI chips, AMD’s high performing GPUs and central processing units (CPUs) are considered best-inclass to build a computing platform that accelerates new intelligence application testing. Risks include slower-thanexpected technology migration and a potential increase in competition.” Cisco Systems : “We view Cisco’s leading market share, incumbency, unmatched distribution channels, and acquisition expertise as key competencies. These structural positives have helped the company respond to shifting technology, changing customer demands, and challenging IT demand trends, and we believe the company remains well-positioned going forward. Key risks to our view include economic growth, supply chain disruptions, execution, and competition. Cisco is pivoting it’s business model to focus on more software and more recurring revenue. Over time, we believe the company should see a benefit to both gross margin and valuation (P/E and EV/FCF) as the business becomes more annuitized and less cyclical.” Marvell Technology : “We like Marvell for its attractive portfolio mix of access layer networking and storage controller businesses. The former will likely benefit from the multi-year structural growth in 5G, automobile ethernet and data-center networking, while the mature storage business provides a steady and strong cash flow for R & D expansion in the networking area. With a broad product portfolio and potential to extract higher dollar content per base station from its existing customer pool, we believe the company is well positioned to tap into opportunities in 5G infrastructure buildout. Meanwhile, the acquisition of Avera Semiconductor allows Marvell to pursue other 5G-related opportunities in custom-made systems for chip businesses. Key risks include margin pressure in the form of aggressive price competition from its peers and an inability to shift production quickly.” Microsoft : “In our view, Microsoft has emerged from its transition to a cloud and subscription based model better than many peers, and the company is extremely well-positioned to gain share as cloud adoption ramps. This positions the company to gain “share of wallet” within IT budgets, while expanding margins. Valuation appears fair relative to growth prospects, peers, and history, but we believe MSFT shares offer an attractive combination of growth and defensive characteristics. Key risks to our view include PC demand, the company’s ability to drive continued margin expansion, tough comparisons, and potential for large M & A.” Nvidia : “We like NVIDIA due to its strong long-term growth opportunities in AI, gaming, and data centers. And we believe the company’s competitive positioning remains well ahead of its competitors from a software, systems, and ecosystem perspective. Hyperscale customers spending will likely remain robust in the next few years, underpinning steady demand for its GPU and accelerators. NVIDIA is also well positioned to extend its leadership beyond the AI training market into the AI inference market while its competitors continue to lag behind. Longer-term opportunities in edge segments like autonomous vehicle, robotics, and smart cities will likely provide more diversified opportunities. Key risks to our view are potentially increased competition from emerging companies and excess inventories.” (Jim Cramer’s Charitable Trust is long AMD, CSCO, GOOGL, MRVL, MSFT, NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A robot plays the piano at the Apsara Conference, a cloud computing and artificial intelligence conference, in China, on Oct. 19, 2021. While China revamps its rulebook for tech, the European Union is thrashing out its own regulatory framework to rein in AI but has yet to pass the finish line.
Str | Afp | Getty Images
The technology sector covers such a broad swath of industries — from semiconductors to software to electronics — that figuring out just where to invest can be daunting.
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