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Technology: reasons for optimism

  • 01 June 2021 (5 min read)

Technology has attracted a lot of attention this year, with higher interest rates drawing some concern over valuations. While semiconductor shortages have highlighted the world’s dependence on technology, investors have also been looking to companies which are poised to benefit from the reopening of the global economy.

Thus far, corporate earnings and guidance for 2021 have been encouraging from the companies we invest in. Within our strategy, the biggest positive surprises have come from a wide variety of sectors, supporting our view that we are at an inflection point in terms of the growth acceleration we see in various advanced technologies. Areas like 5G, artificial intelligence and digital banking offer new opportunities for companies within the technology sector and new opportunities for investors.

More broadly, the US economy continues to perform strongly, with core capital spending jumping 2.4% in April as businesses stepped up investment, Q1 GDP growing at its fastest rate since 2003, and S&P 500 first quarter earnings per share growth on track to exceed 45%, more than twice the growth expectations before Q1 earnings season begun.1

New long-term drivers of growth

We already see 5G making a difference to company results, with Apple launching several new products, including its first 5G handset. The development of 5G has implications right across a range of sectors, from tower operators to specialist chip manufacturers such as Qualcomm, which now receives royalties for its intellectual property from every major handset manufacturer in the world.

More broadly, the semiconductor industry remains critical to the global economy, with this only highlighted by the recent shortage. While we think current conditions could help manufacturers by supporting their pricing power, the longer-term opportunity lies in the growth of the market.

According to Gartner, worldwide semiconductor revenue rose to $466.2bn in 2020, a 10.4% increase on the year before. Growth has remained strong this year, with the Semiconductor Industry Association reporting that chip sales rose by 17.8% in the first quarter of this year compared to the same period a year ago. Several trends reinforced by the pandemic – i.e. the rise of cloud computing, the internet of things and industry digitalisation – have boosted end demand for chips. Investors continue to underappreciate other growth drivers in our view, such as the importance of chips in electric vehicles, which are critical in everything from batteries to braking systems.

COVID-19 consequences to continue

While the pandemic clearly boosted the technology sector, there is still plenty of room for further growth. As the CEO of PayPal commented, most estimates of e-commerce have been pulled forward three to five years as a result of the pandemic. PayPal is now seeking to capitalise on the increased engagement it has seen over the past year and is putting in place plans to accelerate the launch of new financial products and services, such as its ‘pay later’ scheme.

Chart 1: eCommerce penetration in the US (% retail sales)
Source: AXA IM, US Census Bureau, Euromonitor, Prologis Research forecast, June 2020. For illustrative purpose only.

Card-based or mobile-wallet based transactions are rapidly becoming the first choice for the majority of consumers, regardless of transaction size. In a report last year, Gartner even went so far as to say that global cash in circulation would reduce in 2024 for the first time in decades.2 The move away from cash is a long-term secular trend which is far from over, rather than a one-off boost which compresses future growth into a shorter time-span.


Technology has undeniably had a good run – both over the past year and even before the pandemic. While the urge to take profits is understandable, technology remains a very attractive part of the market, able to grow over and above the long-term rate of the economy. We continue to believe that good quality growth companies justify a premium and that our holdings will be able to grow into their valuations over time.

At the time of writing, for those companies in the MSCI World Index (representing the broader market) that have reported their first-quarter numbers, 69% have reported better-than-expected revenues and 75% reported better-than-expected earnings.  For the technology component of the same index, the results were 79% and 83%, respectively and for the AXA Framlington Global Technology Fund, these figures are 88% for both, respectively.3

The price action we have seen over the first half of 2021 will of course happen from time to time, and we will sometime trim positions when they look to have gotten ahead of themselves, as we did with Zoom late last year. This does not change our view on technology’s secular growth opportunity, however, and that the fundamentals of the businesses we invest in remain very solid.

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Single Sector Risk: as this Fund is invested in a single sector, the Fund's value will be more closely aligned with the performance of that sector and it may be subject to greater fluctuations in value than more diversified funds.

Currency Risk: the Fund holds investments denominated in currencies other than the base currency of the Fund. As a result, exchange rate movements may cause the value of investments (and any income received from them) to fall or rise affecting the Fund's value.

Further explanation of the risks associated with an investment in this Fund can be found in the prospectus.


Why consider investing in the technology sector?

At the heart of this evolution are innovative companies driving change across the entire economy – including how we work, shop, build relationships and find information

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