Advertisement

Don’t let Facebook’s woes put you off technology stocks

A professional investor tells us where he’d put his money. This week: David Older of Carmignac selects three technology stocks with solid growth prospects.

After the tumble in Facebook's share price, has the technology sector lost its shine? While the dramatic headlines provided a sanguine reminder of the risks associated with a tightening regulatory environment, investors should not lose sight of the fact that disruptive technologies and trends are a key factor for achieving long-term performance. Even if investors have lost their appetite for Facebook, there are still plenty of other tech investment opportunities that offer excellent prospects for growth.

Leading a $55bn market

The ability to gather, analyse and utilise large volumes of data is undeniably a driving growth theme across a number of different industries. An example of this is the enterprise software sector, which is enjoying strong demand from companies seeking to modernise their IT infrastructure to utilise the potential of data analytics. The switch from software licensing to a subscription-based model is also improving the financial profile of software companies over time.

Advertisement - Article continues below

Splunk (Nasdaq: SPLK) is a clear market leader in IT operations analytics, and is attacking a total addressable market worth around $55bn. As well as being a strong player in the security-information and event-management market, the company is also starting to expand into business analytics, which opens up other avenues of growth.

Growth in video gaming

At the more light-hearted end of the software spectrum, investors would be well advised not to overlook the potential of video gaming. As of 2017, the gaming industry is valued at some €100bn and is growing at a rate of 9% per year, far outstripping other entertainment industries such as film and music. The average age of US video gamers is 35, showing that the appeal of gaming as entertainment is wider than you might have thought.

Similarly to enterprise software, video gaming is also seeing a transformation in its revenue model. What used to be a cyclical industry reliant on revenues generated from the initial release of a game now employs in-game purchases and add-ons, creating "microtransactions" that can distribute income across several years. Moreover, a growing demand for live streaming of video-game competitions exemplifies how game publishers are finding additional ways of boosting engagement with users and generating revenue more steadily than before. Activision Blizzard (Nasdaq: ATVI) is one company we see benefiting from rising margins and less cyclicality in this industry.

LatAm's eBay

Having identifieda successful technology trend in one country, it is also apt to consider in which other regions it could be profitably applied. This brings the advantage of having a "proof of concept" to support a new business model, along with the opportunity to access a potentially vast, untapped market. A good example of this is MercadoLibre (Nasdaq: MELI), a rising giant of e-commerce in Latin America. The company is currently developing its payment business to address a highly underpenetrated segment in the region, following the same successful pattern used by PayPal and eBay a few years ago.

Advertisement
Advertisement

Recommended

Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Share tips: eight stocks that should deliver robust returns
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 Dec 2019
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Dec 2019

Most Popular

Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Gold hits the big $2,000 level – are Aim miners about to play catch up?
Gold

Gold hits the big $2,000 level – are Aim miners about to play catch up?

With the price of gold shooting through $2,000 an ounce, the yellow metal looks unstoppable. Things are so bullish, even Aim-listed junior gold miners…
5 Aug 2020
Too embarrassed to ask: what is “real return”?
Too embarrassed to ask

Too embarrassed to ask: what is “real return”?

MoneyWeek's latest "too embarrassed to ask” video explains what a real return is and why it's so important for investors.
5 Aug 2020