24.01 Liontrust Views Winter 2024 - Flipbook - Page 8
Technology stocks were one of the dominant themes in financial headlines
in 2023 as the Nasdaq index was the best performing main stock market.
Technology also led the other 10 sectors in the S&P 500 index in being up
more than 50% last year.
IS THIS THE START OF A NEW
TECH BOO
Is this the beginning of a new tech cycle
or have investors already missed the boat
on the earnings rush seen? And with AI
(artificial intelligence) increasingly being
adopted across the economy, who could
be the winners from it in 2024 and
beyond?
Leading the rally for technology stocks in
2023 were the so-called Magnificent Seven
stocks – high-profile companies Apple,
Microsoft, Alphabet, Amazon, Nvidia,
Meta and Tesla. These companies have
been focused on key trends in technology,
such as AI (artificial intelligence), cloud
computing and the development of cuttingedge hardware and software.
Yet the dominance of these stocks has led
some to question whether they have masked
underperformance in other technologyfocused shares and indices. The S&P 500
index soared by more than 20% in 2023,
yet much of this has been driven by the
Magnificent Seven – take these out and the
actual gain would be closer to 6%.
There are also fears that the Magnificent
Seven are overvalued and could face
8
LIONTRUST VIEWS – WINTER
substantial challenges in the years ahead.
One example is falling sales of iPhones
hitting Apple, while Nvidia, which is
currently the world’s leading AI chip maker,
is facing increased competition from rivals
such as Amazon and Microsoft.
While there are challenges ahead, there
are reasons to believe growth is likely
to continue in 2024 for the Magnificent
Seven and the technology sector overall.
All members of the Magnificent Seven are
well-established businesses – five of the
seven have individual market capitalisations
of more than $1 trillion – which make
them better placed, if not guaranteed, to
withstand economic turmoil.
Meanwhile, the technology sector has
shown resilience and arguably has gone
through its recession ahead of other
sectors. First came the Covid pandemic,
which highlighted the importance of
technology in areas from online working to
healthcare, not least in adapting at speed
to unforeseen circumstances, and led to
huge demand for technology. However,
this was followed by a tough 2022 for the
sector after companies were faced with
the sharpest interest-rate hiking cycle in
history combined with a climb down from
unsustainable Covid-induced demand.
According to Liontrust’s Global Innovation
investment team, since then there has been
a shift by technology companies towards
focusing on ‘profitable growth’ after years
of ‘growth at all costs’ – potentially good
news for investors.
Companies in the technology sector
also tend to be highly innovative and
developments such as AI – once niche
but now firmly in the mainstream – are
increasingly opening up opportunities for
companies and individuals in terms of
creativity and productivity.
Furthermore, the Magnificent Seven are
only one part of the picture, and there are
many other exciting technology companies
contributing to growth and showing real
promise for the year ahead, according
to James Dowey, Co-Head of Liontrust’s
Global Innovation team.
He says: “We believe the Magnificent
Seven have been strong because they
