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Tech giants are down

Writer's picture: Andres Sucre Andres Sucre

Last week, even though it was a short one in the markets due to Thanksgiving, generated a lot of discussion around volatile investments.


Both Fred and Howard, two blogs that I read on a daily basis referenced the market drawdowns for the FAANG stocks. Both like Apple if it continues to fall.


The trend for the last months/2018 has been “risk off” and seems to be accelerating.


We may be close to the end of the business cycle; with increasing interest rates globally, a liquidity crunch from the end of QE in the US and Europe, and significant leverage on government balance sheets, all which could lead to a global recession.


However, if I take a step back and look at this presentation on “the end of the beginning”, it seems that we are just getting started on the information revolution for the long term, and Google, Apple and Facebook continue to be in a strong position to add significant value.


I believe all three companies are under-earning their potential as they continue to focus on growth instead of profitability.


Apple is the most valuable company in the world and has dropped 26% from its 52w high. Agree with Fred that growth is slowing but they continue to have product leadership and ability to increase revenue through the app store ecosystem. Plus it helps to have 130bn in current assets to put to work.


Facebook has been hit the worse, dropping 40% from its all-time high. Aside from a cautious growth outlook, the main focus on the company has been its involvement in political influence (US, UK, etc) and its leadership control. There was a two-part documentary on Frontline dedicated to the company. However, I do not believe that these headlines will impact the day to day business in Facebook significantly, aside from higher monitoring costs. This company has the largest mobile audience in the world and has not even begun to monetize IG and Whatsapp properly/internationally. Biggest risk is on the regulatory side but think this will take some time to go through.


Google is down 20% from its high. I can just say that I tried using other products (email, search, calendar, etc) in recent months to move away from Google dependency on a personal front and found that their products outperform competitors almost on all cases. I have been particularly impressed with their machine learning leadership in voice (translate) and machine learning text (email help), not to mention if they become leading players in autonomous & IOT. In a future where voice, video and text machine learning become extremely valuable for day to day life, I can envision Google continuing to be extremely relevant.


All in all, these three companies continue to dominate on user interaction and product leadership. Even though there are some areas of tech with high valuations, these companies are trading at 16-21 forward P/E and are highly profitable. Of course they can still go down but think that they offer interesting value for the long term.


On a side note, I do not own any crypto assets but have seen the heavy “I told you so” bragging shift from the bulls to the bears in just 12 months. It has been ugly this year. The contrarian in me thinks that now could be a good time to become more educated in the space and see if there are opportunities there. The main issue to figure out is if this technology can become used on a massive scale and if that can transfer into value.

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