For financial professionals in Uruguay

Global technology markets seek normalcy in 2022

Denny Fish

Denny Fish

Portfolio Manager | Research Analyst

Jan 4, 2022

After enduring a string of extraordinary developments over the past few years, 2022 may be a year of normalisation as economic growth broadens and powerful secular themes remain intact.

Key Takeaways

  • Several tech segments – among them semiconductor equipment makers – are potentially positioned to benefit from supply chain shortages resulting from economic reopening, sovereign deployments of fabrication facilities and the longer-term trend of a digitising economy.
  • Technology’s ability to disrupt existing business models remains on display – with fintech being a recent example – and reminds us that the marketplace is ever dynamic.
  • Higher interest rates and their effect on global growth present a challenge to cyclical tech stocks as well as longer-duration growth stocks through potential downward pressure on valuations.

What themes do you anticipate will most influence the global tech sector in 2022?

2022 is shaping up to be a year of normalisation for the technology sector. In the past 20 months, tech has experienced an acceleration of the digitisation of the global economy, historic supply-chain disruptions and a backdrop of highly accommodative monetary policy. These developments have the potential to shift over the next few quarters. Given the sway it has over other sectors, the semiconductor shortage may merit the most attention. Progress is being made in reducing backlogs, but it may take until the latter half of the year before chip makers can fulfill outstanding orders. Equilibrium, however, is a moving target given strong secular and cyclical demand for semis. We see sustained tailwinds for the advanced chips powering novel technologies like artificial intelligence and for the memory chips and microcontrollers that have become ubiquitous across industries.

There are concerns that the segments that fared best during the pandemic, including software, digital ads and social platforms, may have a hard time exceeding recent comparables. We believe these business models remain advantaged and that a more telling comparison is a two-year growth comparison against 2019 results. Mega-cap names aligned with attractive secular themes remain at valuations in line with the broader market, despite what we view as these companies’ potential for higher growth rates.

Where do you expect to see the most compelling opportunities?

We believe the tech sector is positioned to benefit from both secular and cyclical forces. We see these converging in the semiconductor complex. To ameliorate current shortages and meet rising demand as supply chains become localised, manufacturing capacity must be added. Integral to this are the capital equipment makers that enable chip fabrication. Furthermore, as these companies’ customer bases grow, so should service-based, recurring revenue. We also view connected TVs as increasingly fertile ground for customisable digital ads. Lastly, we are only scratching the surface of disruptive fintech and believe that many segments of finance stand to reap the efficiencies inherent in innovative technologies and business models.

What are some of the most underappreciated risks?

Near-term risks to tech stocks fall into two categories: macro and sector specific. With respect to the former, the likelihood of rising interest rates introduces the risk of policy error. Should central banks move too quickly, they could squelch economic expansion. This would be most harmful to “cyclical growth” stocks, namely semiconductors. Secular growers would also be at risk as the value of their distant future revenue streams would be diminished by higher discount rates. We think an underappreciated risk unique to the sector is “disruptors getting disrupted.” The past few years have seen an unprecedented number of businesses and industries upended by innovative companies. Given the rapid pace of change, there is no rule that yesterday’s disruptors won’t fall victim to the next wave of technological advancement and scrappy upstarts. Regulatory risk also continues to lurk. While China clamped down on the tech sector in one fell swoop, Western governments may ultimately achieve the same ends, but in a more incremental manner.

Provide what you believe to be the most important takeaway for an investor with exposure to (or considering) tech stocks in 2022.

It may seem like tech commands a disproportionate share of corporate headlines. This is no accident. Given the potential for delivering increased efficiencies across the economy, it’s our view that tech companies will command an ever-greater share of aggregate corporate earnings and, thus, equity returns as the digitisation of the global economy continues. The pace of disruption inherent in the sector, however, can lead to elevated volatility. To address these, we believe investors should place a high value on active management and a balanced approach. Active management, in our view, enables investors to maximise exposure to the technologies and businesses that we expect to drive earnings over the longer horizon, while underweighting certain legacy names facing disruption and diminishing market share.

The current period is illustrative of the importance of balance. Right now, tech stands to benefit from both cyclical- and secular-growth tailwinds. That is not always the case and managers should be mindful of the forces set to redefine the sector over the longer term and the current environment, which may either be favourable for tech companies or present temporary headwinds. Similarly, investors should recognise the distinct characteristics of names that exhibit resilience and those with optionality. Resilient companies tend to be more mature and have the consistent earnings streams that allow them to weather a range of environments. More optional names have the potential to deliver above-average earnings growth as they establish new markets and capture a greater share of existing ones.


Monetary policy refers to the policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money.


Portfolio Manager Outlooks

What should be on the radar for investors in 2022?


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