What is enshittification?

“Enshittification” is a term coined by the British-Canadian technology critic and author Cory Doctorow in 2022 to describe how the digital services that increasingly dominate our lives – Meta, Amazon, Alphabet and the rest – all turned to crud at the same time. Not everyone is as comfortable with vulgarity as Doctorow. When speaking about the phenomenon in public forums, the author plumps for “enpoopification”, employing a more decorous euphemism – poop – that dates from the mid-18th century. Here, though, we ask readers to tolerate a word that has been in continuous usage in England for about a millennium and which has only been considered rude for the past four centuries or so. “Sometimes a term is so apt, its meaning so clear and so relevant to our circumstances, that it becomes more than just a useful buzzword and grows to define an entire moment,” said Kyle Chayka in The New Yorker. Enshittification is the only word that does justice to what is going on.

What are some examples of enshittification?

This (Generation X) MoneyWeek writer no longer chats pleasurably with old university friends on Facebook because the platform has become so unashamedly crap. Ten years ago, a Facebook feed was made up of friends’ news, views and recommended articles. Now it’s an incomprehensible cesspit of advertisements and pathetic videos. For a while, you wondered if it was just you suffering. Then you realise it’s everybody. That’s enshittification. Or remember when Twitter gave you instant access to your own curated pick of the best journalism, insight and a “livestream feed of smart people on the ground at the most pressing events of the day, not to mention the wisecracks and insights of your friends”? Now, says Charles Barbour on The Conversation, it’s rammed with “ads, gore, porn, toxicity, AI slop and scams of all variety”. That, too, is enshittification. “Facebook, Instagram, TikTok, Amazon, Google, Apple, Uber, Spotify: everything turns to shit. And no one is able to escape.”

Will switching digital platforms stop the enshittification?

That won’t necessarily help. Enshittification is not the result of a business failure that risks driving customers to other platforms. It’s about intentionally letting your platform get crappier once customers are locked in, whether by their own commercial imperatives or by network effects. Enshittification is a strategy, not an accident. In Doctorow’s conception – in numerous essays and laid out more fully in his recent book Enshittification: Why Everything Suddenly Got Worse and What to Do About It – the process of enshittification has three distinct phases. At first, products are great for end users: they let old chums reconnect for free, say, with no surveillance and no “boosted” slop. Next, they abuse those end users to benefit their business customers. They find ways to lock end users in – switching costs, network effects, contracts, digital rights management – and once users are stuck, the company makes the product worse for them to extract more value.

What's the third stage of enshittification?

Finally, platforms use their surpluses to woo business customers (advertisers, sellers, creators), lock them in and start making the product worse for the business side, too. This is the highest form of enshittification: when platforms abuse their business customers, and a lack of meaningful competition and regulation means they can still increase profits. The defining feature of the process is not “things got worse”: it’s “things got worse and we stayed”. For example, in 2019, Google had a 90% market share in search, but growth had stalled, so a strategy was pitched to make search worse so that users would have to run multiple queries and see more advertisements. “That’s enshittification in a nutshell – and we all kept using Google anyway.”

Is this a sustainable model for companies?

The assumption that enshittified companies are doomed to die may be optimistic, says Henry Mance in the Financial Times. Today on Amazon, the top search results are more expensive and sometimes fraudulent. The product you want is, on average, 17th in the results – yet Amazon is thriving. Apple surveils its users as much as Facebook, and refuses to let companies sell refurbished iPhone parts. It lured customers “into its walled garden, which was then revealed to be a prison”, says Doctorow. Now, car firms such as Tesla charge drivers monthly subscriptions for features they have already bought. Indeed, Doctorow’s concept is so “brilliant” it should be applied more broadly, says Paul Krugman in his blog on Substack – a platform that recently pulled off a fundraising round that valued it at $1.1billion, raising fears about its own future path. The logic of enshittification “applies to any business characterised by network effects. It may go under different names such as ‘penetration pricing’, but the logic is the same.” Others go even further, positing Donald Trump, for example, as the “enshittifier-in-chief” of US politics.

Is there a way to combat enshittification?

Doctorow’s book is less convincing on solutions than on entertainingly setting out the problems. But the combination of Trump’s tariffs (undercutting US trade threats) and Brexit (restoring regulatory autonomy) provides a striking opportunity to gain back control of our digital lives, Doctorow argues in The Guardian. Outside the EU, Britain could choose to legalise reverse-engineering for interoperability and user benefit, thus allowing UK firms to modify and improve US tech products, and undercut the rent-extraction models of US platforms. Such a move would attract talent and capital spooked by Trump, reclaim digital sovereignty, and build a profitable tech sector focused on “disenshittifying” platforms. The opportunity is narrow and fraught with political and economic risk. But, says Doctorow, it is “the most exciting proposition in decades”.

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The final snapshot… the last picture… the end of the reel. The headlines on potential corporate obituaries for Kodak write themselves. There was a flurry of speculation earlier in August that the company that once dominated the photography market – and turned itself into one of the world’s most famous companies – might be on the verge of shutting down. The company says this was a misunderstanding – but the fact that it even sounds possible should be a warning to today’s tech giants.

Rewind three decades, and Eastman Kodak was still a heavyweight. The business was founded in 1880 at the dawn of the era of mass photography and quickly came to dominate the industry. At its peak, it employed 140,000 people worldwide, and it was worth $30 billion. Kodak was synonymous with photography in the way that Google is with search, Apple with phones, and, more recently, ChatGPT is with AI. During its heyday in the 1960s and 1970s, it was one of the leaders of American industry, pioneering new technologies. But we all know what went wrong.

What investors can learn from Kodak

Since all of us can now take pictures on our phones, we don’t need cameras any more, nor do we need rolls of film. It is a mistake to say that Kodak failed to spot the switch to digital photography. Its world-class laboratories developed some of the key technologies for digital cameras, and it was well aware of how the market was changing. But it put its energy into diversifying into chemicals and information processing, instead of going all-in on digital. In the end, that turned it into a niche player. Gen Z have a fad for analogue film, in the same way they do for vinyl LPs, and that may sustain a modest business. But Kodak has already been through bankruptcy protection once, in 2012, and it is hard to see much future growth.

There are three key lessons here. First, expect radical change. The era of analogue film lasted over a century and that is a very good run. But nothing lasts forever. We don’t use steam engines any more, even though that technology dominated the industrial revolution. There are hardly any typewriters left, nor are there many landlines. The simple rule is that if a technology is more than a hundred years old, then it is probably likely that something better will turn up any day.

What might that apply to today? Broadcast television already looks well past its sell-by date. More radically, building technologies such as elevators have been around for decades without much change; so have aeroplanes. We can’t know if something will come along to replace them, but it could happen any day.

Second, diversify early. Kodak tried to move away from its reliance on film, but by the time it started, it was probably too late, and it made poor choices. Companies can reinvent themselves completely. IBM has gone from analogue adding machines to mainframe computers to IT services. But it does not happen very often. The culture is resistant to change, and the managers in charge never really understand the market they are moving into. More often than not, it ends up as an expensive failure.

Can corporations beat change?

Yet the most important lesson is that the market can change so radically that there is not much you can do about it. The existing giants get brushed aside. The switch from analogue to digital cameras was perhaps more than any company could manage. Kodak would have had to turn itself into a mobile-phone manufacturer to have any chance of surviving the switch to digital, and that was always going to be an impossible task.

All corporations are mortal. They might flourish through three or four generations, but none are going to last forever. The likes of Apple, Amazon and Meta may seem impregnable. They dominate stock market indices and most investors’ portfolios. But so did Kodak at its peak. They are all only one misjudgement away from the same fate – and the vast amount of wealth tied up in their shares could easily dwindle away to nothing.

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Summary

• Microsoft (NASDAQ:MSFT) and Meta’s (NASDAQ:META) shares both jumped after impressive earnings beats
• Meta's stock gained 12% overnight after announcing a 38% year-on-year earnings increase
• Microsoft shares surged almost 9% after announcing 24% year-on-year increase in earnings
• Those gains are enough to push Microsoft's stock to a $4 trillion+ valuation
• Wedbush Securities raised Meta share price target to $920 from $750
• Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) both posted earnings beats
• Apple stock gained 2% overnight as China sales grew 4%
• Amazon's share price fell over 7% as AWS growth lags that of rivals GCP and Azure

| Microsoft and OpenAI | AI ETFs | Apple shares |

Microsoft and Meta kick off big week of results

Good afternoon, and thanks for joining our live coverage in the run-up to Microsoft and Meta’s results tomorrow evening, followed by Amazon and Apple’s on Thursday.

Microsoft’s share price movements are the subject of intense interest on Wall Street, as the company’s market capitalisation (market cap) nears the $4 trillion threshold Nvidia became the first company to break earlier this month.

A bumper earnings release on Wednesday could send Microsoft’s shares soaring. Will it be enough to join Nvidia?

Magnificent Seven earnings season is in full swing. Follow here for rolling previews, analysis, updates and reaction.

Microsoft and Meta shares gaining ground ahead of results

Markets have been open for around twenty minutes today, and as things stand Microsoft shares are up around 0.7%, while Meta’s stock has fallen 0.2%.

During yesterday’s session, Meta’s shares gained a boost from market optimism over a US-EU trade deal, gaining 0.69%. Microsoft’s stock was 0.25% up at one point, but closed the session down 0.24%.

When do Microsoft and Meta announce their results?

Both Microsoft and Meta will announce their results this Wednesday (30 July) after US markets close. That means after 9pm UK time.

Meta’s earnings call is scheduled to start at 2pm PT, which is 10pm in the UK. Microsoft’s is scheduled to start half an hour later, at 10.30pm in the UK.

Results will be released in between the close of markets and the start of the respective earnings calls – generally, soon after markets close.

Microsoft and Meta’s shares will continue to be traded during this period in what is known as after-hours trading.

What do analysts expect from Meta and Microsoft’s results?

Analysts polled by FactSet and LSEG have the following expectations for Meta and Microsoft’s results this week:

The FactSet estimates see Meta’s revenue increasing 14.7% and earnings rising by 14.0% year-on-year.

Microsoft, meanwhile, is expected to grow revenue by 14.0% and earnings by 14.6%.

Microsoft earnings preview

Besides the headline numbers, analysts and investors will be keeping a close eye on Microsoft’s cloud revenue platform, Azure.

Azure is one of the top three cloud service platforms, alongside Magnificent Seven rivals Amazon Web Services (AWS) and Google Cloud. Cloud services like these are getting a boost from the compute demands of artificial intelligence (AI) training.

“We strongly view this as Microsoft’s ‘shining moment’ with AI set to change the cloud growth trajectory,” says Dan Ives, global head of technology research at Wedbush Securities.

Like Google, Microsoft has its own AI model, Copilot. A theme for this week’s results could be analysts watching for signs of return on these AI investments.

“Adoption [of Copilot] has been picking up, and investors want to know whether it's boosting revenue in a meaningful way,” says Lale Akoner, global market analyst at eToro. “Microsoft is spending heavily to build more AI infrastructure, so profit margins will be closely watched.”

Meta earnings preview

Like Microsoft, investors will want to see evidence that Meta’s extensive investments into AI, especially its Llama model, are yielding results.

“So far, markets have rewarded the company’s massive capex pivot, driven by custom silicon, Llama models, and expanding infrastructure, but now it’s “show me the money” time, says Lale Akoner, global market analyst at eToro.

“Reality Labs losses remain a sore spot, but are tolerable if core earnings impress,” adds Akoner. “User growth and ad pricing trends, especially outside the US, will be scrutinised closely given recent dollar strength and macro wobble in emerging markets.”

Thanks for following our reporting ahead of Microsoft and Meta's earnings. Join us again tomorrow for a full day of preview and analysis, followed by Amazon and Apple's on Thursday.

Meta stock falls and Microsoft trades flat ahead of earnings

Good morning, and welcome back to our live coverage ahead of Microsoft and Meta’s results.

Microsoft shares closed yesterday’s session just 0.01% above the previous session’s close.

Meta’s share price, meanwhile, fell 2.46% in regular trading, though some of these losses were recovered after hours.

Expect to see lots of movement in both Microsoft and Meta’s stock this evening as both companies announce their results for the most recent quarter.

When do Apple and Amazon announce their results?

Apple and Amazon will both announce their latest results tomorrow (31 July), after markets close in the US.

The results will land in between markets closing and the start of each company’s earnings call, both of which are scheduled for 2pm Pacific time (10pm BST).

During after-hours trading, both Apple and Amazon’s stock is likely to be highly volatile. Share price movements will depend initially on the reaction to how the raw numbers compare to the expectations of analysts (we’ll bring you more on those later today), as well as how each company’s management discusses them during the earnings calls.

Why the Mag7 still matter

In case investors are wondering why changes in Microsoft or Meta’s share price should interest them, it is worth remembering that the Magnificent Seven group has been outperforming the broader market for over a decade.

“It really has been a case of investors needing to keep up exposure to these companies to enhance portfolio returns,” says Daniel Casali, chief investment strategist at Evelyn Partners.

The roots of this outperformance goes back to the rise of the internet during the 1990s, mobile data in the early 2000s, and the cloud computing revolution from 2006 onwards.

“In 2025 this is reflected in their earnings forecasts,” says Casali. “For the second quarter, they are expected to post an aggregate annual earnings increase of 14%.”

Data from FactSet suggests that the S&P 500 as a whole has, by contrast, posted average year-on-year earnings growth of under 6% so far this earnings season.

When it comes to the Magnificent Seven, “their financial leadership is not just a matter of trend: it’s a structural advantage,” says Casali.

Meta’s AI spend in focus

Meta’s share price has made solid gains this year as the company is, currently, viewed as one of the winners of the AI boom. It has been successful in incorporating AI into its ad business, for example, boosting targeting, engagement and efficiency.

However, the company is spending big on developing its own AI models, and that could lead to some investor pessimism if it isn’t able to demonstrate results.

“Meta’s had some disappointing progress on its open-source language models, and it’s opening the chequebook to put things right,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown. “The creation of a new ‘superintelligence lab’ has caused quite the stir, with Meta rumoured to be dangling $100 million+ packages to poach AI talent.”

Last week, Alphabet shares fell immediately after it released its results despite strong headline numbers, with investors alarmed at its increased capital spend projections for this year.

Could we see a similar reaction in Meta’s share price this evening?

Microsoft shares are a favourite among fund managers

Microsoft’s stock has a dominant share of overall fund exposure compared to the rest of the Magnificent Seven, according to data from Morningstar, suggesting that it is a favourite of institutional investors.

Despite having been overtaken by Nvidia as the world’s most valuable company, it still edges the semiconductor giant out of top spot in terms of institutional fund holdings.

“Institutional confidence remains strong, driven by Azure’s 30% growth, deep enterprise ties, and its leading position in AI through OpenAI,” says Monika Calay, director of UK manager research at Morningstar.

Microsoft’s share of the top fund holdings has fallen by just 0.41% over the past ten years – and it has demonstrated greater consistency than any other Magnificent Seven stock during that time.

“Microsoft is the only member of the Magnificent 7 to consistently hold at least a 20% average weight in global equity portfolios every year for the past decade, a testament to its enduring institutional appeal,” Calay adds.

Apple and Amazon results: what the analysts expect

Analysts polled by FactSet and LSEG have the following expectations for Apple and Amazon’s results tomorrow:

The FactSet forecasts, if accurate, envisage Amazon’s revenue increasing 9.5% and its earnings rising by 5.6% year-on-year. For Apple, they predict a 3.9% increase in revenue and a 1.4% rise in earnings.

Meta and Microsoft shares swing during final session before earnings

We’re about one hour into the final trading session before Meta and Microsoft announce their results.

Meta’s stock opened 1.1% higher today, but it has fluctuated through the first hour of trading, currently sitting around 0.5% above yesterday’s close.

Microsoft’s share price opened 0.6% higher than yesterday’s close, but has lost much of those gains in the meantime.

Recap: Microsoft and Meta results expectations

Analysts polled by FactSet and LSEG have the following expectations for Meta and Microsoft’s results tonight:

Meta and Microsoft shares will likely make their first moves based on their performance against these headline figures, as well as other relevant factors included in their earnings release, like capex expectations and forward guidance.

We’ve seen before, though, that management comments during the earnings calls can have a big impact on share price movements. The sentiment for both Microsoft and Meta’s stock will depend heavily on whether they can convince investors that they are winning the AI war.

Microsoft results: Azure growth in focus

Microsoft shares are still struggling to make gains during this session, up just 0.14% three hours into trading.

Could strong growth in Azure - Microsoft's cloud platform - give Microsoft stock a boost this evening?

"Cloud performance through Azure was stronger than expected last quarter, and there could be some upside to guidance of 34-35% growth," says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Dan Ives, head of global technology research at Wedbush Securities, also believes that Azure's growth could take the market by surprise.

"We believe the stock still has yet to price in what we view as the next wave of cloud and AI growth," says Ives. "We view MSFT as the clear front-runner on the enterprise hyper scale AI front, despite increasing competition from Amazon's AWS and Google's GCP."

We're going to take a pause in reporting for now. Join us back here at 9pm for live coverage of Microsoft and Meta's earnings releases.

Breaking: Microsoft stock surges on earnings beat

Microsoft's share price has gained over 7% since close of trading.

Earnings per share increased 24% year-on-year to $3.65, and revenue increased 18% to $76.4 billion.

Azure revenue increased 34% year-on-year to $75 billion.

BREAKING: Meta stock up over 9% as earnings soar

Meta's stock, meanwhile, has surged 9.1% in after-hours trading on a bumper earnings beat.

Revenue increased 22% year-on-year to $47.5 billion and earnings per share rose 38% to $7.14 - smashing through the ~$5.90 that analysts had expected.

Concerns over Meta's profits following its AI investments seem misplaced now...

Microsoft's "slam-dunk quarter"

A few more highlights from this earnings beat that has seen Microsoft's stock surge over 7%:

• Intelligent Cloud revenue of $29.88 billion, ahead of an expected $28.92 billion.
• Gross margin of 68.6% beat an expected 68.0%; operating margin of 44.9% beat the expected 43.6%.
• Net income increased 24% year-on-year to $27.2 billion.

"This was a slam-dunk quarter for MSFT with cloud and AI driving significant business transformation," said Dan Ives, global head of technology research at Wedbush Securities. "We believe Microsoft is just hitting its next phase of monetisation on the AI front and more enterprises are accelerating their AI budgets," he added.

Meta's capex will keep growing next year

Meanwhile Meta's stock is still climbing, now up almost 9.5% since those results dropped.

"Meta has knocked it out of the park," says Matt Britzman, senior equity analyst at Hargreaves Lansdown. "AI is clearly delivering real-world benefits for advertisers, and they’re willing to pay more as a result. Average price per ad was up 9% over the quarter, a clear indication that Meta is delivering an improved product for both users and advertisers."

Capital spend is likely to increase $30 billion in the full year 2025, and CFO Susan Li signposted a similar rate of capex growth next year.

That may have taken analysts by surprise, but the market doesn't seem to mind. With the previous investments yielding such strong returns already, big spending seems to be going down well, and Meta shares are climbing.

We're going to end coverage here for this evening, but we'll be back tomorrow with more reaction and analysis for these eye-catching results, as well as a digest of what Meta and Microsoft's management says during their upcoming earnings calls.

Microsoft to enter $4 trillion club?

Good morning, and welcome back to our live coverage of tech earnings season. We’ll be digesting those huge earnings beats from Microsoft and Meta as today goes through.

Meta’s stock has gained 12% in out-of-hours trading since it reported a 22% revenue rise and a massive 38% increase in earnings.

Meanwhile, Microsoft looks set to join Nvidia in the $4 trillion market cap club when regular trading opens today. Microsoft stock has gained 8.7% overnight, following a 24% year-on-year increase in its earnings. Its market cap at close yesterday was $3.81 trillion – so closing today’s session with share price gains of anything over 5% from yesterday’s close will be more than enough to make Microsoft the world’s second $4 trillion company.

End of the AI profitability debate

There have been questions over the last two years as to whether or not the money that the Magnificent Seven hyperscalers are pouring into AI will deliver results.

That debate seems to be over.

"Meta and Microsoft turned over a new chapter in the AI story last night," says Matt Britzman, senior equity analyst at Hargreaves Lansdown. "Both companies crushed it, with debates around whether AI is delivering tangible returns starting to fade into history."

Meta’s stock surges on Superintelligence optimism

There was speculation ahead of Meta’s earnings release that investors would be put off by the big spending that the company is pouring into its Superintelligence Lab. But in the event, the vision of a superintelligent future painted during the earnings call saw Meta’s share price surge.

CEO Mark Zuckerberg led with optimism over the lab and its potential early in the investor call.

“Developing superintelligence, which we define as AI that surpasses human intelligence in every way, we think, is now in sight,” said Zuckerberg at the start of his prepared remarks.

“To build this future, we've established Meta Superintelligence Labs, which includes our foundations, product and FAIR teams as well as a new lab that is focused on developing the next generation of our models.”

Zuckerberg said that AI-infused smart glasses, such as those it has developed with Ray-Ban and a new range it is launching with Oakley, will be the main way that superintelligence is integrated into people’s daily lives.

He explained that one of the biggest technological hurdles that needs to be overcome in building AI that is more intelligent than humans is to build software that can train itself.

“We’ve begun to see glimpses of our AI systems improving themselves,” he said, adding that the progress was “slow for now”.

BREAKING: Wedbush raises Meta share price target

Influential investment bank Wedbush Securities has raised its 12-month price target for Meta from $750 to $920.

Based on where Meta's stock closed regular trading yesterday, that implies 32.3% in share price gains over the next year.

"We believe the recent level of investment is justified, and the infusion of AI capabilities across the company's ad stack and content recommendation engines are driving tangible results for Meta's Family of Apps and Reality Labs," said Scott Devitt, managing director, Equity Research at Wedbush Securities.

Recap: when do Amazon and Apple announce results?

With Microsoft and Meta's stock surging after their earnings beats is easy to forget we've got two more Magnificent Seven companies announcing results tonight.

Here's a recap of those timings:

eToro: Microsoft stock offers "perfect mix" to investors

It’s quite hard to overstate how impressive the double beat from Microsoft and Meta was last night.

Microsoft in particular hit all the right notes for a stock that looks set to break $4 trillion in market cap.

“Microsoft is investing heavily to build AI infrastructure, though it seems to be working,” says Lale Akoner, global market analyst at eToro. “Margins are holding up, and the business is seeing real demand, not just hype.”

Akoner believes that investing in Microsoft is one of the best ways to ride the AI wave long term.

“For retail investors, this is a perfect mix of a tech giant growing fast, spending smart and actually delivering on their AI promise,” she says.

Amazon stock on a high heading into earnings

Amazon’s share price looks set to catch some of the positive fallout from Microsoft’s big earnings beat yesterday. Amazon stock is up 2.6% in pre-market trading five minutes before US markets open.

With Azure revenue growing 39%, investors seem to be positioning themselves for the possibility of AWS following suit.

Scott Devitt, managing director, Equity Research at Wedbush Securities, expects AWS revenue to increase by 16% year-on-year in these results. That figure would put AWS revenue on approximately the $30.5 billion mark.

“AWS commentary was encouraging last quarter, highlighting the strength of AI demand,” Devitt said in a research note. He also highlighted that AWS management had said that AWS growth would have been higher in Q1 were it not for near-term capacity constraints.

BREAKING: Microsoft stock opens session at $4 trillion+ market cap

US markets have opened and Microsoft's share price has opened 8.2% above yesterday's close, more than enough to tip its market cap above $4 trillion during regular trading for the first time in its history.

Can Meta stock stay higher for longer?

Meta’s share price has also sustained its overnight gains, opening today’s session up 11.6% following its stellar results last night.

“Meta reported a blow-out quarter, meaningfully eclipsing both Street and Buyside estimates for 2Q revenue and the 3Q guide,” said Benjamin Black, co-head of Internet Equity Research at Deutsche Bank in a research note.

Black drew attention to Meta alleviating fears that its capex might be getting out of control.

“Perhaps just as importantly, the high ends of both FY25 operating expenses and capex guidance were maintained, while the lower ends were both modestly increased, which is meaningfully better than feared,” he said.

Big spending is perhaps the only cause for concern with Meta’s stock at present.

“Meta is planning to spend a lot more, possibly over $100 billion next year on AI and infrastructure. That’s a huge bet and while it could pay off long term, it adds real risk in our opinion,” says Lale Akoner, global market analyst at eToro.

“Meta stock jumped after earnings, but it’s had sharp ups and downs lately. Investors are still trying to figure out if all this spending will drive future profits, or just higher costs,” she added.

Apple’s share price has fallen 16.5% in the year to date. Apple used to be the world’s most valuable company, but at the moment it is languishing.

Macro conditions haven’t helped. Trump’s tariffs pose a particular threat to the company given how reliant its supply chain is on components manufactured overseas – particularly in China. Apple’s management has already flagged a $900 million hit to its profits as a result of tariffs.

But this is compounded by mounting disappointment on its progress in AI, which has “fallen well short of what investors and consumers have come to expect from one of the world's leading brands”, says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“Apple Intelligence has so far failed to deliver the game changing experience that was promised, so investors should watch out for any updates on new AI features,” Britzman adds. He also believes that tariff impacts are likely to come under scrutiny during this evening’s earnings call.

Apple and Amazon shares steady heading into results

Apple shares are trading flat today, while Amazon stock is up 1.7%, in their final trading session ahead of results.

On paper, analysts polled by FactSet expect the following figures from each company:

While these numbers could impact Amazon and Apple’s share price moves in after-hours trading, there is also likely to be a strong focus on deeper metrics.

In Amazon’s case, that will be growth of its cloud division, AWS. Microsoft set the bar high on that front last night, with its Azure division posting 39% revenue growth.

Apple, meanwhile, will need to demonstrate to the market that it is not being left behind in the AI race. Again – both Meta and Microsoft have demonstrated that spending big on AI is already delivering profits. Apple will need to convince the market that it is prepared to be bold in this race.

Our coverage is going to pause here for now, but we will be back after these results have been posted to bring you the headlines and all the reaction.

Apple shares rise after encouraging results

Good morning, and welcome back to our live coverage of big tech earnings season.

Apple shares have gained 2% overnight, following the company’s latest earnings release which revealed a return to positive growth territory in China, a key market for Apple.

Revenue of $94.0 billion represented 10% year-on-year growth and a record for Apple’s June quarter. Diluted earnings per share (EPS) were up 12% on last year to $1.57. Analysts had forecast revenue of $89.2 billion and EPS of $1.43.

“This was a major step in the right direction for [Apple CEO Tim] Cook and Cupertino with China the star of the show,” said Dan Ives, global head of technology research at Wedbush Securities.

“Now it's time to address the elephant in the room: the AI strategy which remains absent while the rest of the tech world is laser focused on the AI Revolution,” he added.

Amazon stock falls despite earnings beat

Amazon delivered an earnings beat – $1.68 compared to $1.33 expected – but its share price has fallen by more than 7% since the close of trading yesterday.

Revenue increased by 13% year-on-year to $167.7 billion, well ahead of the $162.2 billion that analysts had forecast.

AWS revenue rose 17.5% to $30.9 billion. In isolation, that’s not a terrible result – but compared to the momentum that Google’s GCP and, in particular, Microsoft’s Azure have demonstrated, investors are clearly concerned that AWS is being caught by its rivals.

“The spotlight was firmly on AWS, and it didn’t quite shine as brightly as expected,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“While Microsoft and Alphabet have already shown strong momentum in cloud growth, AWS wasn’t the knockout many wanted to see, highlighting just how tightly investor sentiment is tied to the AI narrative right now.”

AI pessimism dampens reaction to Apple’s results

The 2% overnight gain for Apple’s shares is a fairly modest response to what is on paper one of the strongest sets of results in recent years.

iPhone sales grew 13% year-on-year, as did Apple’s Services division.

Investors, though, are clearly still underwhelmed by Apple’s progress on AI.

“We believe our platforms offer the best way for users to experience the full potential of generative AI,” said CEO Tim Cook during the earnings call that followed Apple’s results.

But the market isn’t convinced.

“Apple should be a leading name in AI hardware, but that’s simply not the case,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Apple Intelligence was a flop, so a lot of hope now lies in an AI-powered Siri – but that might not come until next year.

“Brand loyalty gives Apple time to get the AI transition right, but it needs to start delivering,” adds Britzman.

Thank you for following

Thanks for following our coverage of Meta, Microsoft, Amazon and Apple's results.

We're going to wrap up our live reporting here. But we will keep breaking down the latest round of results and their implications for the market over the coming days, so keep checking MoneyWeek for the latest news on tech stocks.

We'll also bring you live coverage of Nvidia's results at the end of August. With cloud revenue booming and AI capex booming in Magnificent Seven results season so far, will it be another bumper set of results for the semiconductor giant?

Summary

• Alphabet announced earnings per share (EPS) of $2.31 and revenue of $96.4 billion, beating analyst estimates
• Tesla’s results showed EPS of $0.40 and revenue of $22.50 billion, down year-over-year, but in line with analyst estimates
• Tesla shares fell over 4.6% during the earnings call
• Five other Magnificent Seven companies announce earnings next week. Nvidia announces at the end of August

The MoneyWeek team is bringing you rolling previews and analysis, along with live coverage and reaction. Keep following for the latest.

| Magnificent Seven latest | Invest in Tesla? | S&P 500 | AI ETFs |

Good morning, and welcome to our live coverage of another big tech earnings season.

Two of the industry’s heavy hitters – Netflix (NASDAQ:NFLX) and Taiwan Semiconductor Manufacturing Company (NYSE:TSM) – got things underway last week, but big tech earnings season truly kicks into gear this week, as the first two of the Magnificent Seven companies announce their results on Wednesday.

Alphabet’s earnings release will be an intriguing glimpse into how the company is navigating the choppy waters that artificial intelligence poses. Is its core Search business holding up in the face of increased AI competition? If not, can growth of its Google Cloud service make up for any shortfall?

Then there is Tesla. Once again, quarterly delivery numbers have disappointed, calling Musk’s much-publicised political activity into question. But Tesla is now a robotics company – didn’t you know? – so updates on this month’s robotaxi launch will be the focus of attention at Tesla’s earnings call.

We will bring you rolling updates, preview and analysis, throughout this week and next.

When are Alphabet’s and Tesla’s earnings releases?

Both Alphabet and Tesla announce earnings after US markets close on Wednesday 23 July.

Alphabet’s earnings call is scheduled for 1.30pm Pacific Time (9.30pm in the UK), half an hour after US markets close. Its earnings will likely be published online during that window.

Tesla’s earnings call is scheduled to start at 4.30pm central time – 10.30pm in the UK, so one hour later than Alphabet’s.

TSMC results paint upbeat picture for big tech earnings

Taiwan Semiconductor Manufacturing Company – often referred to as TSMC for short – is rarely included in any of the big tech groupings, and isn’t anything like as much of a household name, but that is perhaps unfair.

In a nutshell, it is the world’s most advanced manufacturer of computer chips. Nvidia, which is the best-known semiconductor company in the world, doesn’t actually build any of its chips. TSMC does. It also builds chips for Apple, Arm, Qualcomm, AMD and Broadcom.

TSMC announced a 61% increase in profits last week, with revenue rising 39%. Yesterday, the company joined several of its high-profile customers in the $1 trillion market cap club.

Given that it builds the hardware that the rest of the tech industry depends on, TSMC’s success is a good bellwether for the health of the sector.

Netflix shares fall despite earnings beat

Streaming giant Netflix also posted its results last week. Shares fell in after-hours trading following the announcement, despite an earnings beat, exemplifying the weight of expectation that big tech companies are under at present.

Netflix was once numbered among the world’s most prominent big tech stocks during the ‘FAANG’ (Facebook, Amazon, Apple, Netflix and Google) era. Now, with a market cap around $520 billion, it is no longer in the upper echelons of big tech stocks, analysts, if not the market as a whole, were impressed with its 16% year-on-year revenue growth, and 47% increase in earnings.

“Netflix continues to produce phenomenal results with ever more growth in its sights,” said Alicia Reese, SVP Media & Entertainment equity research at Wedbush Securities. “Even as investor expectations were high heading into the print, and shares reflected some disappointment in the size of the beat and raise, the quality of the beat and raise keeps us positive as we assess the ongoing expansion of Netflix’s free cash flow.”

See our explainer on the results and subsequent Netflix shares reaction for more detail.

S&P 500 earnings strong so far

TSMC and Netflix are two of the highest-profile tech companies to have beaten earnings estimates so far, but it’s a trend that is playing out across the S&P 500.

Around 60 of the biggest 500 US companies have declared Q2 results so far. Of those, more than 80% have beaten expectations.

“That’s not unusual,” says Tom Stevenson, investment director at Fidelity International. “Companies tend to massage forecasts lower in the run up to results season.

“But it does suggest that earnings growth will continue at around the long-run average of 7%,” he adds.

Of course, with their high valuations, most of the Magnificent Seven stocks are expected to grow their earnings above this rate. Will they deliver?

Alphabet earnings: the watch-outs

Let’s take a closer look at the big tech earnings releases coming up this week, starting with Google’s parent company Alphabet.

Market sentiment towards Alphabet has dimmed in recent months. It is the cheapest of all the Magnificent Seven companies relative to past and projected earnings, trading at 21.22 times trailing earnings and 20.46 times projected earnings – below the S&P 500’s average on both fronts.

The fact that those two figures are so close to each other highlights part of the problem: analysts do not see Alphabet’s earnings growing significantly in the near future.

Many fear that generative AI could cut into demand for Google’s core Search business.

“New competition from language models like ChatGPT [is] a genuine threat,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Alphabet has a quality lineup of businesses, but its long-standing crown as the entry point to the internet is under pressure, and that’s put the valuation under strain.”

There is also the possibility that regulators could force a breakup of Google’s business, with two antitrust cases having found that the company operates an illegal monopoly over internet search over the last year.

“Calls for a forced Chrome divestment could challenge Alphabet’s search dominance, and that will keep some investors cautious until there’s more clarity,” said Josh Gilbert, market analyst at eToro.

Google has said it will appeal the decisions, but with Search lying at the heart of Google, any updates will be closely monitored on Alphabet’s earnings call on Wednesday.

Alphabet earnings: the tailwinds

While generative AI poses a threat to Alphabet’s business, it also offers opportunities, and investors will watch out for these keenly at the earnings call tomorrow.

For one thing, AI demand is driving growth of Google Cloud, with analysts projecting top-line cloud revenue growth of around 26-27%.

“Alphabet is continuing to invest heavily in Gemini, its flagship AI assistant, as well as AI-powered ad products and enterprise tools,” says Josh Gilbert, market analyst at eToro. “With growing investor interest in monetisable AI applications, updates on Gemini’s integration into Search, Workspace and Cloud could be a key focus this quarter.”

Capital expenditure is likely to rise, but the market won’t necessarily regard that as a negative given the arms race that big tech companies are engaged in over AI.

“In this environment, it’s spend or get left behind,” says Gilbert.

Tesla earnings: under-delivery becoming a habit

Tesla’s earnings will be released under a cloud: delivery numbers fell year-on-year for the second consecutive quarter. The company announced a total of 384,122 deliveries for the quarter on 2 July.

Shares in Tesla actually rose by 4% following the announcement, but fell 8.4% on 7 July. Tesla shares have fallen nearly 20% this year, as the relationship between CEO Elon Musk and president Donald Trump has soured.

“Elon’s position as a Tony Stark-like personality at the head of the company was a boon for a long time, but it’s hard to argue that his prominence isn’t having some detrimental effect on the brand,” says Josh Gilbert, market analyst at eToro. Read more on Musk’s changing relationship with Tesla here: Who’s driving Tesla?

Cybertruck sales have also continued to decline, having hit their lowest level in a year during the last quarter.

Fairly poor financial results can be almost baked-in for Tesla, barring any major cost-cutting achievements. As is often the case with the company, the short-term share price movements might hinge more on what Musk says that what the numbers show.

Tesla earnings: the robo-revolution

Tesla believers, though, don’t tend to have their faith shaken easily. Few are more bullish than Dan Ives, global head of technology research at Wedbush Securities.

Ives points to an uptick in Chinese sales during June as one reason for optimism ahead of Tesla’s earnings.

“Despite seeing more low-cost models enter the market from Chinese OEMs like BYD, Nio, Xpeng, and others, the company’s recent updates to the Model Y spurred increased demand,” says Ives.

With the long-awaited robotaxi launch having taken place in Austin earlier this month, there will be plenty for Musk to shout about if he wants to. Investors will look for updates on all things robotics when gauging Tesla’s mid-term prospects.

“There are a number of other key endeavors at Tesla including Optimus and the future of robotics, with Tesla one of the clear future leaders in AI in our view,” says Ives.

Thanks for following our reporting ahead of Tesla and Alphabet's earnings. We're leaving things here for today, but join us here again tomorrow morning for a full day of preview and analysis ahead of live coverage of the earnings releases in the evening.

Good morning, and welcome back to our live coverage of big tech earnings season.

This evening sees both Google parent Alphabet and Elon Musk's Tesla announce their second quarter (Q2) results.

Both companies are coming into this earnings season facing challenges as well as headwinds from the rise of artificial intelligence (AI). Follow here live for rolling previews and live updates from both earnings calls.

When do Alphabet and Tesla announce earnings?

To recap, both Tesla and Alphabet announce their Q2 earnings today, after US markets close. That means any time from 9pm in the UK.

Tesla and Alphabet will host an earnings call where management will field calls from analysts. These are scheduled to take place back to back. The earnings release for each company could land any time between the close of markets and the start of the earnings call, but they tend to land fairly soon after markets close.

The key timings are summarised in the table below:

Alphabet and Tesla earnings: what to expect

Analysts are forecasting the below revenue and earnings per share figures at Alphabet and Tesla’s releases this evening, according to consensus estimates from analysts polled by FactSet and LSEG:

Based on FactSet estimates, analysts expect Tesla’s revenue to fall 12.6% year-on-year, and for its earnings to fall by 23.1%.

The forecasts imply a 10.9% increase in revenue and a 15.3% increase in earnings for Google’s parent company Alphabet.

Alphabet earnings: beyond the numbers

As ever with big tech earnings, it is less likely to be the headline numbers that dictate which way Alphabet's shares trade immediately after it announces results today.

Instead, the data and comments from management surrounding the longer-term challenges and opportunities is likely to be the main driver.

In Alphabet's case, this all boils down to whether or not the potential gains from AI outweigh the threats it causes to the Google parent company's business.

"The rise of ChatGPT and other AI platforms has created unprecedented challenges for Google's search business," says Fabien Yip, market analyst at IG. "These new competitors offer conversational interfaces that provide intellectual answers to complex questions, potentially reducing users' reliance on traditional search engines and the advertising revenue they generate."

Google has developed competitors to ChatGPT, particularly its latest model Gemini 2.5 Pro, and investors will look for evidence of growth and adoption of Gemini during tonight's earnings call.

There is also the opportunity for Google Cloud to keep taking market share from competitors, like Amazon Web Services and Microsoft Azure.

"Innovation in AI enterprise solutions will be crucial for Google Cloud's continued success," says Yip. "The company's ability to integrate cloud offerings with other Google products like Workspace provides a competitive advantage that rivals find difficult to replicate."

Could Tesla invest in xAI?

One topic that could come up on Tesla’s earnings call this evening is the possibility of the company investing money into Elon Musk’s artificial intelligence start-up, xAI, which makes the Grok chatbot.

“Tesla is about to embark on an aggressive AI-focused strategy that we believe will include owning a significant piece of xAI,” says Dan Ives, global head of technology research at Wedbush Securities. “While near-term and this quarter the numbers are nothing to write home about, we believe investors are instead focused on the AI future at Tesla.”

Tesla investing in xAI would be subject to a shareholder vote later this year. Historically, Tesla investors have tended to follow Musk’s lead when it comes to corporate votes, but Josh Gilbert, market analyst at eToro, feels that convincing investors to put Tesla money into another Musk company could be a hard sell.

“Even if there is a theoretical future benefit for Tesla, it’s going to be a very hard case to make,” he says.

Winning the AI race: Trump to speak at AI summit as Tesla announces earnings

Today’s tech earnings announcements are conveniently timed, coinciding as they do with a major event in American AI.

President Donald Trump is due to speak at the ‘Winning the AI Race’ summit hosted by the All-In podcast and the Hill and Valley Forum in Washington, DC today.

Along with senior leaders from tech companies like Palantir and VC firms such as Y Combinator, Trump is expected to outline a roadmap to making the US the world’s leading AI economy.

Dan Ives, global head of technology research at Wedbush Securities, anticipates three main strands:

• The build-out of AI infrastructure;
• Innovation aimed at blocking states’ ability to hinder AI development with regulation;
• Ensuring that global US allies adopt its models, rather than those of “foreign adversaries”.

“The Trump keynote will likely aim at outlining a national AI strategy while targeting aggressive plans to accelerate chip exports reflecting the new administration’s elevated focus on winning the AI race,” says Ives.

Trump’s address is scheduled to take place at 5pm Eastern time, and as such could overlap with both Alphabet and Tesla’s earnings calls.

TSLA and GOOGL shares: one hour until US markets open

There is just under an hour to go until US markets open for the final session before Tesla and Alphabet announce their results.

Yesterday, Tesla stock gained 1.1%, but pre-market moves suggest Tesla shares could open today slightly below this level.

Alphabet shares likewise saw gains yesterday, of around 0.65%, but look set to open slightly down today.

Tesla share price opens 0.4% down ahead of earnings

US markets are now open, and shares in Tesla have opened the final session before the Q2 earnings release 0.4% below yesterday’s close.

Tesla shares have fallen around 18.3% so far this year

Alphabet’s shares opened today’s session slightly above yesterday’s close, but have since slipped below it.

Investors can expect big changes in both Alphabet and Tesla’s share price in after-hours trading following their earnings announcements today.

Magnificent Seven earnings calendar

Alphabet and Tesla are the first two Magnificent Seven companies to announce their Q2 earnings. Here’s the full schedule with the rest of the season’s releases:

There is a big gap between the first six companies and Nvidia, as is usual. Some semiconductor companies, such as Broadcom, won’t release their results until September.

Google revenue: what to watch in Alphabet's earnings release

Google’s heart and soul is its Search business, but its Cloud division is the fastest-growing segment by some distance.

“Cloud growth is the other key driver for Alphabet, with Google Cloud looking much more competitive for AI workloads than it was in previous cloud wars,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Analysts are forecasting somewhere between 26-27% revenue growth for Google Cloud, implying a figure of $13.04-13.14 billion.

Alphabet’s share price movements following the earnings call could largely depend on whether the figure comes in above or below this level.

Look out also for Google Services revenue. This division includes the core search and advertising revenue that Google’s empire is built upon.

Analysts expect growth here to slow to 8.5%, implying a figure of $80.21 billion. Beating that would suggest that Google Search is more resilient than thought to the generative AI threat – for now at least. However, falling short could set alarm bells ringing.

We're going to pause coverage for a few hours, but we'll be back around 9pm, when US markets close. Join us then as we report Tesla and Alphabet's earnings releases live.

Tesla shares look set to close up ahead of earnings

Good evening, and welcome back to our live coverage of Alphabet and Tesla's results.

Tesla shares opened this session down, but are around 0.3% up for the day as we head into the final minutes of regular trading.

Shares in Alphabet, though, have fallen through this session. Will Q2 results, and the subsequent earnings calls, change the picture for either stock?

US markets close; Alphabet and Tesla results now due

US markets have now closed. Alphabet shares finish this session 0.58% down, while Tesla's stock gained 0.14%.

Attention now shifts to the imminent release of each company's Q2 earnings report. As a reminder, here's what analysts polled by FactSet and LSEG are expecting:

BREAKING: Alphabet earnings rise 22% year-on-year

Alphabet's headline figures are in:

• Revenue of $96.4 billion, 14% up year-on-year
• Earnings per share of $2.31, up 22%

Alphabet beats on revenue and earnings

Both earnings and revenue came in above analysts' expectations. Google Search and Google Cloud revenue have both beaten expectations too.

Services revenue increased 12% to $82.5 billion, while Cloud revenue grew 32% to $13.6 billion. Analysts had been forecasting these segments to grow by 8.5% and 27% respectively.

Despite this, Alphabet shares have fallen 2.3% in after-hours trading. A reflection, perhaps, of how high market expectations are on the big tech giants.

BREAKING: Tesla earnings fall by 23%

Tesla has now released its results. The headline figures:

• Total revenues down 12% year-on-year to $22.50 billion;
• Earnings per share down 23% to $0.40.

Numbers like these were expected; earnings per share is exactly as FactSet analysts had forecast, while revenue is a touch higher.

Tesla shares are, in fact, gaining ground in after-hours trading following the earnings release.

Alphabet bumps capex to $85 billion

Alphabet's results make great reading on the face of it. Beats across the board, and the core Google business lines (especially Search and Cloud) have outperformed expectations.

The share price is tanking all the same.

One reason for this could be a big spending announcement.

"We are increasing our investment in capital expenditures in 2025 to approximately $85 billion and are excited by the opportunity ahead," said Alphabet CEO Sundar Pichai in the earnings release.

Has this big spending increase caught the market off-guard? AI is known to need big cap-ex from the major players, but some investors may be baulking at the level of this spend.

Tesla: affordable car is now in production

Tesla stock made gains immediately after its results were released - though these have since reversed.

Poor financial results had already been factored in ahead of today's results, given the deliveries were announced earlier in the month.

But there are positives in the earnings release. One of these is an announcement that the long-awaited affordable car began production in June, and that this will scale up in the second half of 2025.

The announcement also states that Cybercab will enter volume production in 2026. Anything relating to the self-driving car business is going to attract investors' attention. Expect Elon Musk to dive into detail on this during this evening's earnings call.

Alphabet earnings call starts

Alphabet's earnings call is now getting underway. Management will flesh out the raw numbers that have already been released.

Shares are down about 1.25% in after-hours trading at the start of the call.

Alphabet earnings highlights: Alphabet CEO says AI is benefitting Google Search

Alphabet CEO Sundar Pichai is delivering his open remarks, and striking an emphatic tone on the positive impacts of AI on Google’s business.

AI Overviews in Google Search now has over 2 billion monthly users, across more than 200 countries, according to Pichai.

The Gemini app has over 450 million monthly active users. Daily requests were 50% higher in June alone than in the first quarter of the year.

“AI features cause users to search more, as they learn that search can meet more of their needs,” says Pichai. That seems to be a direct response to market fears that generative AI could eat into demand for Google Search.

The market is responding positively to these comments. Alphabet stock has rebounded to above where it closed today’s session, reversing the share price drop that accompanied the results’ initial release.

Alphabet’s capital expenditure in focus

According to Alphabet’s CFO Anat Ashkenazi, the extra $10 billion that Alphabet is spending this year largely reflects “additional investment in servers, the timing of delivery of servers and an acceleration in the pace of data centre production, primarily to meet cloud customer demand”.

Both she and Pichai have spoken of a tight supply environment for compute power, as the world’s technology companies vie for access to the world’s data centre resources.

Part of Alphabet’s response to that tight market is to increase the supply, by building out its own data centre infrastructure. But Pichai warns there will be a lag before that new capacity comes online; demand for compute power is going to outstrip supply for the foreseeable future.

Alphabet's share price has now gained more than 3% in after-hours trading, as investors digest management's framing of the results.

Can Google Search keep making money in the AI era?

A question has come in on the monetisation of Google Search, given the falling number of ad impressions available per click-through in the era of AI Overviews.

Google's chief business offer Philipp Schindler replies: "AI Overviews... continue to drive higher satisfaction [and] higher search uses.

"We see monetisation at approximately the same rate, which gives us a really strong base on which we can then innovate and drive more innovative, next-generation ad formats."

Alphabet's earnings call sees shares gain 2.7%

Alphabet's earnings call has now finished. Shares are up 2.7% in after-hours trading at the end of it.

Now our attention turns to Tesla, whose earnings call will start shortly. At present, Tesla shares are down around 0.4% in after-hours trading.

Tesla: robotaxis could serve half US population by the end of the year

Tesla's earnings call starts with some big statements on the rollout of its (geofenced) robotaxi service.

Robotaxi is set to expand to "well in excess of what competitors are doing" in the next two weeks, says Tesla CEO Elon Musk.

The company is also seeking regulatory approval to launch in the San Francisco Bay Area, Arizona and Florida. Musk says that by the end of the year, Tesla will "technically" be able to offer self-driving rides to half the US population.

"That's our goal, subject to regulatory approvals," said Musk.

Musk aims for 1 million Optimus robots annually within five years

Optimus, Tesla's humanoid robot, will have prototypes this year, followed by scaled production next year, says Musk.

He says that the objective will be to produce one million units per year as quickly as possible - hopefully, within five years, he says.

Market will need more convincing on Google’s AI staying power

The conundrum that surrounded Alphabet, and whether AI is a headwind or a tailwind for Google, still remains even after a strong set of results.

“Alphabet is being forced to adapt or risk becoming a dinosaur in the new AI age,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

The numbers on the key areas – Search and Cloud revenue – were impressive. But the question of monetisation remains.

“The Alphabet AI investment case is something of an enigma,” says Britzman. While the market seems to have decided that Alphabet is destined to be a loser in the AI race, Britzman feels that view is “both short-sighted and overly pessimistic.

“That said,” he adds, “until there’s more confidence that AI integration won’t cannibalise core search revenue, and some clarity around ongoing legal battles, there’s enough uncertainty to cap near-term upside.”

Customers love robotaxi, says Tesla

The opening remarks in Tesla's earnings call are now done. They were unusually uneventful, the robotaxi and Optimus plans notwithstanding.

The first analyst question asks for more detail on the robotaxi rollout.

"Robo taxi has been doing great so far in Austin," replies Tesla's CFO Vaibhav Taneja. "Customers really love the experience. Super smooth, very safe, and just a great experience overall."

He adds that expansion in Austin has already started, and that testing in a number of other cities has already started.

Tesla CFO: not appropriate to discuss xAI investment in earnings call

A question is asked about the benefits of Tesla invested into xAI.

CFO Janeja replies that this isn't the forum to discuss that issue, and that "if there is something which we need to discuss, we'll discuss it separately".

Musk then adds, "Obviously, we're a publicly-traded company. Shareholders are welcome to put forward any shareholder proposals that they'd like. I personally encourage that."

Tesla stock falls 2.8% in after-hours trading

Tesla shares slumped at around the time that Elon Musk finished his prepared remarks. They are now down around 2.8% in after-hours trading.

Most of the comments have been a little underwhelming, and non-specific. A lot of reasons given for delays in delivery - but many of these same reasons have been given at previous earnings calls.

Is the market starting to lose patience with Tesla?

How will the end of EV tax credits impact Tesla?

The end of tax credits could lead to "a few rough quarters", says Musk in response to a question on the subject. President Donald Trump has said that he will remove the electric vehicle (EV) tax credits that were introduced during the Biden era later this year.

Musk says that while tax incentives for EVs are vanishing in the US, they are still in place in much of the rest of the world.

"On the other hand, autonomy is most advanced and available from a regulatory standpoint in the US. So does that mean we could have a few rough quarters? Yeah, we probably could."

While the second half of this year and the first half of next could be tricky, Musk says that "once you get to autonomy at scale in the second half of next year... I'd be surprised if Tesla's economics weren't very compelling".

That's the end of Tesla's earnings call. Shares are down over 4.6% in after-hours trading, with investors having responded negatively to a cautious set of responses from Musk and his team.

Thank you for following our live coverage. That's everything for this evening, but we will be back tomorrow morning with rolling analysis and reaction to Google and Tesla's earnings.

Tesla’s long game

Good morning, and welcome back to live coverage. We’ll spend today breaking down the implications of last night’s earnings results from Alphabet and Tesla.

There are two contrasting stories there. Alphabet’s share price gained 2.3% in after-hours trading as management was able to paint an upbeat picture of Google’s place in the AI ecosystem, in spite of the challenges to its core business that the technology poses.

But Tesla’s share price fell 6.1% in after-hours trading, as CEO Elon Musk warned that the company could be set for a tough period until the second half of 2026.

“The typical playbook for the past few quarters has been declining fundamentals but enough AI hype to keep investors sleeping at night,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Musk’s cautious tone went against this typical pattern, but he was as ever bullish about the longer-term plan for Tesla, saying it is easier to predict where the company will be in five years’ time than in one or two.

“Tesla is in a very small cohort of companies with enough growth potential that investors are, for now at least, willing to look past weakening core financials,” says Britzman. “Last night's comments confirmed many fears around tariffs, rising costs, tougher margins, and struggling cash flows.

“But with that now firmly built in as the base case, the AI story can take back the wheel.

Robotaxi versus Waymo

One of the big questions that surrounds Alphabet and Tesla – and which both management teams discussed on last night’s earnings calls – is the future of the self-driving car market. Google’s Waymo and Tesla’s robotaxi are viewed as the two front-runners.

Waymo has now covered 100 miles on public roads, it was revealed yesterday. But Elon Musk went out of his way to talk down Waymo’s prospects, saying “Google is good at AI, yes, but they’re not good at real-world AI”.

ARK Invest – known for its bullish stance on Tesla – explains why they feel Tesla is the frontrunner in this race.

“Waymo in San Francisco, while more expensive than Uber and Lyft, are already starting to take share,” says Sam Korus, director of research for autonomous technology & robotics at ARK Invest. “And there are a lot of reasons why Tesla should be able to offer rides for a lower price than Waymo.

“They're using vision only, so their vehicles are less expensive. They have an adaptable fleet, so they can meet peak trough demand, without having underutilised vehicles. And they've got manufacturing scale so don't have to negotiate with other auto manufacturers.”

He adds that Tesla produces around 5,000 cars per day, which is around double the size of Waymo’s entire fleet. All of these can hypothetically become self-driving robotaxis.

“At the end of the day, people are going to look at an app and say, I can get from point A to point B for less money,” adds Korus.

Google Search looks safe for now

A major highlight for Alphabet last night was the resilience that its core Google Search business showed.

“Management commentary should alleviate investor caution around the perceived risks of generative AI on the Search business,” said Scott Devitt, managing director, Equity Research at Wedbush Securities. “These concerns are overdone, in our view, with Alphabet validating its ability to navigate this period of transition by exhibiting healthy query volume growth across both new and traditional surfaces.”

Top-line revenue growth for the Search arm beat analysts’ expectations, coming in at 11.7%. Paid click growth accelerated from 2% in Q1 to 4% in Q2.

While Alphabet still trades at the lowest earnings multiple of all Magnificent Seven companies, Devitt feels there is room for this improve over the coming quarters as investors become more comfortable with “the current macro environment, regulatory risk and the impact of generative AI on the business”.

Tesla and Alphabet earnings recap

Here’s a reminder of the headline results that Alphabet announced last night:

Tesla’s results looked like this:

Expectations are based on the consensus estimates of analysts polled by FactSet.

Tesla stock continues to fall

Any hope that Tesla stock would bounce back quickly from its after-hours decline has been dashed today.

Tesla's share price opened today's session 6.8% below yesterday's close, and has since fallen further, currently down around 7.6%.

The data centre supply gap

There was much talk during Alphabet’s earnings call yesterday on the tightness of compute supply: that is, how much resource is available in AI-dedicated data centres compared to the demand for it.

That tight supply is what eventually ameliorated the market’s response to Alphabet’s eye-watering $85 billion capex figure for 2025. There is huge demand for resources, and with Google Cloud revenue growth exceeding expectations, it makes sense for Alphabet to invest in capturing this market.

“AI adoption is growing at a speed far greater than what anyone is prepared for,” says Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics. Morningstar’s demand model forecasts US data centre capacity to triple between 2024 and 2030.

So while Google’s investment seems extreme at first glance, this is a market with significant growth potential. Google Cloud’s backlog increased 38% year-on-year, “implying continued momentum in the coming periods”, says Scott Devitt, managing director, Equity Research at Wedbush Securities.

Thank you for following our coverage of Alphabet and Tesla's earnings releases. We're going to end things here for now, but we'll be back next week for coverage of the next four Magnificent Seven stocks to announce earnings: Amazon, Apple, Meta and Microsoft.

The Magnificent 7 – or Mag 7 – is a group of seven companies that are viewed as some of the leading names in artificial intelligence (AI) and technology.

These are frequently popular stocks with DIY investors, given their perceived leadership of crucial tech trends, as well as their massive global reach.

At the start of 2023, the seven tech companies collectively comprised approximately 20% of the S&P 500 between them. Now, they make up more than a third (34%) of the index.

So, which companies make up the Mag 7?

What are the Mag 7 stocks?

The seven companies that comprise the Mag 7 group are:

• Alphabet (NASDAQ:GOOGL) – the parent company of Google, as well as other companies such as the AI lab DeepMind;
• Amazon (NASDAQ:AMZN) – originally an online bookstore, now a giant of e-commerce and cloud computing via AWS;
• Apple (NASDAQ:AAPL) – the tech hardware company that brought the world the MacBook and the iPhone;
• Meta (NASDAQ:META) – formerly Facebook, the company is now heavily focused on ‘Metaverse’ technology as well as AI products, like the Llama model;
• Microsoft (NASDAQ:MSFT) – the computing giant behind the Windows operating system and the Azure cloud platform;
• Nvidia (NASDAQ:NVDA) – the hardware developer that pioneered GPUs, the chips that power AI data centres;
• Tesla (NASDAQ:TSLA) – the electric vehicle manufacturer that launched its long-awaited robotaxi service in Austin, Texas in 2025.

The term ‘Magnificent 7’ was coined by Bank of America analyst Michael Hartnett in 2023. By then, the group was already starting to dominate the stock market in the wake of the AI and tech stock mania that followed the public launch of ChatGPT in late November 2022.

While most of the group are highly diversified – Amazon is an e-commerce company as well as the world’s largest cloud services provider; Alphabet makes phones, self-driving cars and owns YouTube in addition to its cloud computing division and its core internet search business) – AI is their unifying feature as a group.

Some (like Nvidia) sell the hardware that underpins AI, or the cloud services on which models are trained and distributed (Amazon, Microsoft and Alphabet hold a 63% share of the global cloud market between them). Others develop AI platforms, such as Meta’s Llama or Microsoft’s Copilot, or integrate ‘physical AI’ into robots and self-driving cars (especially Tesla).

They are stock market behemoths; all have a market capitalisation (market cap) over $1 trillion as of 17 April. Nvidia, currently the largest in the group, has a market cap of close to $5 trillion.

How have the Mag 7 stocks performed over time?

Over recent years, each of the Magnificent 7 stocks have seen substantial increases in their share price.

In the five years to 17 April 2026, the Mag 7 stocks registered the following share price performance:

• Nvidia: +1,170%
• Alphabet: +202%
• Meta: +127%
• Apple: +107%
• Microsoft: +69%
• Tesla: +62%
• Amazon: +47%

In terms of how the group as a whole has performed, the CNBC Magnificent 7 Index – which tracks the seven stocks – gained 328% between its inception in October 2022 and 17 April 2026.

Why invest in the Mag 7 stocks?

It is no coincidence that the Mag 7 are some of the world’s most popular stocks to invest in.

“These stocks have a history of technological innovation and investment, which has allowed them to become the frontrunners in their field,” said Lee Wild, head of equity strategy at investing platform Interactive Investor. “Vast financial resources mean they can continue to spend heavily on further research and development.”

If you think about how frequently you search on Google, order goods from Amazon or check your iPhone, it soon becomes apparent just how wired in these companies are to daily life all over the world.

“Throughout the years, Magnificent 7 companies have grown significantly in size, enjoying market dominance and significant brand power,” said Wild. “They also have global recognition and large loyal customer bases, which helps reinforce their growth credentials.”

That has translated into rapid earnings growth for these companies, which in turn has underpinned the kind of share price gains noted above.

The risks of investing in the Mag 7 Stocks

However, popular stocks bring risks with them, regardless of how large and successful they are.

“All stock markets experience some level of volatility, but technology shares can experience greater price movements given the sector’s growth potential,” said Wild.

Tech companies in particular often trade on high price/earnings multiples given the expectation that their business will grow at pace many years into the future, and this is especially true of the Mag 7.

“However, if growth is slower than expected, or something goes wrong, share prices can sharply fall,” said Wild.

He added that their global reach can expose these companies to legal and regulatory scrutiny. Last year, Alphabet won an antitrust lawsuit that had been brought against it claiming that Google had a monopoly over online search.

There are also geopolitical risks in operating such massive businesses in innovative fields, as the various blockers that both the US and China have tried to raise against Nvidia selling its most cutting-edge chips into the Chinese market.

“As companies grow larger, they might reach a scale whereby it becomes more difficult to maintain a level of high growth that investors have become accustomed to,” said Wild. “They might also become vulnerable to competition either from smaller, more nimble rivals within their sector, or from alternative technologies.”

Are the Mag 7 still magnificent?

This group of stocks started being referred to as the Magnificent 7 during the rise of AI and in the aftermath of the Covid pandemic.

But up until then, the most common grouping to refer to big tech stock market giants was ‘FAANG’ – standing for Facebook (now Meta), Amazon, Apple, Netflix (NASDAQ:NFLX) and Google (now Alphabet). These five garnered lots of hype in the years leading up to and, particularly, during the pandemic, but since then AI’s rise (and the stagnation of the work-from-home economy) has seen Microsoft, Nvidia and Tesla gain more attention, while Netflix has been slightly left behind.

A similar process might be underway at present. The Mag 7 are not the largest companies by market cap – semiconductor companies Broadcom (NASDAQ:AVGO) and Taiwan Semiconductor (NYSE:TSM), as well as Saudi Arabia’s state-owned oil company Saudi Aramco (TADAWUL:2222) – are all valued higher than Meta and Tesla as of 17 April.

Some investors discuss the ‘BATMMAAN’ stocks – Broadcom, Alphabet, Tesla, Meta, Microsoft, Amazon, Apple and Nvidia – or the ‘10 titans’, which adds Broadcom, Oracle (NASDAQ:ORCL) and Netflix to the Mag 7.

Additionally, Elon Musk’s SpaceX is expected to IPO at some point this year and recent reports suggest it could be worth more than Tesla or Meta when it lists. If so, that could prompt a reshuffle in how investors categorise the top tech stocks.

Because many consumer brands have been around for 100 years or more, it is easy to assume that they are immortal, churning out cash for their owners through thick and thin. But this is not the case. We are all prone to survivorship bias: the human tendency to forget what has disappeared from view. Brands that are eclipsed by something better, or disappear due to regulation or people’s changing preferences, may linger as a nostalgic memory, but their phenomenal success is forgotten. 

How do you define a brand? A popular definition is a product, service or concept that is distinguished from competitors in the minds of consumers by its name, qualities and reputation. This implies that it can command a premium price. Many businesses, such as shops, airlines and cars, achieve brand recognition but struggle on that last test or, as in the case of petrol stations, fail completely. 

Companies spend huge amounts of money trying to create new brands, but once the initial marketing blitz ends, sales often drop off. The new brand may stagger on for a while, but it then dies. Successful brands require long-term advertising and marketing support that is carefully pitched to sustain the price point, innovation in packaging and an understanding of the changing preferences of customers. 

The recent problems at Diageo and LMVH show that it is easy to overestimate brands’ pricing power. The willingness of customers to pay up for premium drinks labels has faded, yet cutting prices may devalue the brand. Drinkers have other priorities for spending money amid the post-Covid squeeze on their wallets. No doubt these brands will recover, but some that were once huge never have.

The death of Marlboro Man

Marlboro was the most famous of the many cigarette brands, which were killed off as advertising, sports sponsorship and other forms of marketing were banned by governments around the world. 

The Marlboro brand was created by Philip Morris in the 1920s as a woman’s cigarette but was repositioned in the 1950s using the image of the “Marlboro Man”, a cowboy complete with a Texan hat. This gave a rugged, outdoors male image while the addition of a filter to the cigarettes, once regarded as effeminate, was supposed to make cigarettes safer to smoke. 

Supported by heavy advertising, sales quadrupled in two years and Marlboro quickly became the world’s most popular cigarette. Other cigarette companies resorted to undermining it by seeking a ban on its advertising. The death from lung cancer of a succession of actors who had featured as the face of the “Marlboro Man” did nothing for the brand’s image. Marlboro still sells 240 billion units a year and is the top-selling cigarette worldwide, but the value of sales has fallen by a third since 2015, and the latest country to ban its advertising was Indonesia in 2012. 

Bye-bye Babycham

Bambi’s favourite tipple, Babycham, is a sparkling perry developed by drinks company Showerings in the early 1950s. Initially, sales were disappointing but when its price was quadrupled to four shillings a bottle, they took off. 

It was marketed as a “Champagne perry” (pear cider) with a trademark “Bambi” deer and was the first alcoholic drink to be marketed on television. Its appeal was as a sophisticated brand for young women to drink in the pub. Their mums drank port and lemon, or Guinness. 

Sales peaked in the 1970s at 144 million bottles a year. In 1978, the Champagne houses sued to stop the use of their trade name. Although they were unsuccessful, Babycham stopped calling itself a Champagne. Sales declined and attempts to revive it were only temporarily successful as its target market switched to wine and other cheaper alternatives. Showerings floated on the stockmarket in 1960 and was bought by Allied Lyons in 1968, but the Showering family bought the brand back in 2021 from an intermediate owner. Let’s see how successful they are.

Blackberry: The first smartphone

Mobile phones first appeared in the 1980s as large, clunky brick-like devices, but the phones soon got smaller and their battery lives increased. Nokia came to dominate the European market with its handy pocket-sized phones, but fiddly texting was the only service other than the capacity to make phone calls. 

The first BlackBerry smartphone appeared in the late 1990s and took the market by storm, being able to send and receive emails. It worked on several different wireless networks, offered security and used its own servers. Before Wi-Fi became widely available, at a time when bandwidth was also in short supply, customers enjoyed the ability to read messages and delete emails without downloading the text. Companies liked the control it gave them over corporate usage. 

At its peak in 2011, BlackBerry had 85 million users. But then Android and Apple arrived, which cut the ground from under BlackBerry’s feet as they offered better technology, while mobile networks were also developing rapidly. By 2016, BlackBerry was down to 21 million users. Some traders still reminisce nostalgically about their BlackBerries, but none would swap their iPhones for one now. The lesson for investors is that brands have tremendous longevity if carefully nurtured, but they do not necessarily last forever.

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From artificial intelligence (AI) to cybersecurity, technology has become a big investment theme this year.

Established brands such as Microsoft, Apple, Amazon and Alphabet have become staples of many investor portfolios.

“Technology stocks have been the stand out winners from the last decade and the big tech titans now command enormous competitive advantages over any potential rivals,” says Laith Khalaf, head of investment analysis, AJ Bell.

“They are also deeply entrenched in everyday life which is a very different landscape to the tech boom and bust of the late 90s.”

The latest technology trend is AI and as many established companies and others get involved in the boom, there is a risk of overvaluations and a bubble as investors seek the next big thing.

“Technology investors will point to growth prospects of tech stocks as justification for their lofty valuations, but those who believe in mean reversion will no doubt wince when they look at long run valuation measures,” adds Khalaf.

“This is compounded by the fact that investors can now get a 5% risk-free return on their money from cash or bonds, compared to less than 1% just a couple of years ago.

Before diving into tech stocks, investors should double-check what their existing exposure is, adds Khalaf.

"If invested in global or US funds, it’s likely they already have a sizeable slug of tech in their portfolio, and adding some more simply increases the bet on a sector that comes with a premium price tag," he says.

While many fund managers and analysts will back major players such as Apple, Alphabet, Meta, Microsoft and Nvidia, we asked experts for their views on some of the lesser-known and undervalued top technology stocks.

Accenture

Consulting firm Accenture (NYSE:ACN) serves a diverse client base with a significant emphasis on technology consulting. 

While consulting contracts are typically short and clients can terminate contracts at short notice, Charles Stanley equity analyst James Ford believes its movement into AI will accelerate its growth.

Its share price is up around 23% this year and approximately 50% of its group revenue is derived from its cloud business, which demonstrated 27% year-over-year constant currency growth for the full year 2023.

“The company is well positioned to capture the extensive opportunities presented by the ongoing trend of businesses migrating onto cloud, driven by the cost benefits in doing so,” says Ford.

“Cloud growth has slowed recently due to cyclical factors such as an optimisation in customer IT spend, but structural drivers remain intact. AI represents a natural evolution of cloud computing, and the gradual adoption of AI is likely to reaccelerate growth.”

Ansys

Ansys (NASDAQ:ANSS) provides physics-based simulation software tools to evaluate how products will perform under various environments to ensure quality and safety.

Its share price is up around 21% so far this year.

“Ansys enables resource savings, for example by allowing a material’s sustainability and recyclability to be factored earlier into product design and testing,” says  Jon Wallace, fund manager of the Jupiter Green Investment Trust.

“Virtual design and testing using simulations allows engineers to consider assembly and disassembly during the design phase, which leads to easier recycling of valuable materials and removal of toxic materials when the product is no longer usable.”

Intel

While all eyes are on computer chip maker Nvidia and AI, Shard Capital partner Julian Wheeler says Intel (NASDAQ:INTC)is quietly turning itself around, with its share price up 67% so far this year.

 “Apart from Nvidia, only one other company in the S&P 500 has performed better over the last six months since we first bought it, yet it is almost entirely ignored by specialist technology funds and Wall St analysts,” says Wheeler.

“Intel has new products for the hardware upgrade that is coming – how else are people going to run this AI then? – and is setting out its store to become the ‘Taiwan Semiconductor Manufacturing Company of America’ with huge subsidy backing from the government.

 “My prediction is that by the time Intel announces it will make chips for Apple and Wall Street subsequently suggests it is a ‘buy’, the stock will be very much higher.” 

Intuit

Intuit (NASDAQ:INTU) is a US-based financial software business that is best known for its QuickBooks accounting software and TurboTax DIY tax preparation software.

It is expanding into payments, payroll and compliance for small businesses and is growing its consumer arm.

Mark Nelson, senior equity analyst at Killik & Co, also suggests that Intuit is well positioned to benefit from AI.

 “It has a massive quantity of data: 500,000 customer and financial attributes per small business, 60,000 tax and financial attributes per consumer, and nearly 20 billion transactions imported from financial institutions annually,” he says.

 “Importantly, this is data that only Intuit has. The recently unveiled Intuit Assist generative AI platform, now integrated across its various offerings, can harness this data, driving more frequent and meaningful customer engagements, and reducing churn while also providing another lever for growth.”

Intuit's shares are up around 40% already this year and it is trading on 33 times July 2024 earnings.

 “We believe that if the company can execute on its exciting initiatives in generative AI, service-based offerings then there is potential for a high-teens growth rate, exceeding current market forecasts,” adds Nelson.

SAP

German multinational SAP (NYSE:SAP) provides business operations and customer relations software, which may not sound too exciting but its share price has grown 43% so far this year.

That has excited Tom O’Hara, portfolio manager of the Henderson European Focus Trust.

 “The boring world of enterprise resource planning (ERP) software has gotten more interesting and, thankfully, SAP’s governance and capital allocation framework is much improved of late,” he says.

 “What we now see is the prospect of double-digit compound earnings growth as SAP’s corporate clients move their systems from ‘on premise’ to the ‘cloud’.

“SAP has expedited the transition by announcing a 2027 cut-off date for on premise maintenance services.”

The company is also able to cross-sell services and O'Hara is also impressed by its appointment of Dominik Assam as chief financial officer from Airbus.

“He is cash flow focused and has a track record in delivering in large-scale organisations,” he adds.

Funds

Picking individual shares takes a lot of research and can cost a lot in trading fees depending on the investment platform you use.

It is important to build a diversified portfolio and if you don’t have the time or confidence to pick and monitor shares, it may be worth backing a fund instead that will do much of this work for you.

Kasim Zafar, chief investment officer for EQ Investors, highlights the Sanlam Global Artificial Intelligence fund. 

“As a theme, we think we are still in the early innings of AI development and adoption,” says Zafar.

“For investors, finding companies that are able and willing to harness this technology to improve revenues or manage costs will lead those companies out-competing rivals. It is exactly this approach that is used by Chris Ford and his team running the Sanlam Global Artificial Intelligence fund, making it our top pick in the technology space.

Tom Hopkins, senior portfolio manager at BRI Wealth Management, also suggests using investment trusts to take advantage of competitive discounts to net asset value (NAV) whilst reducing stock specific risk in the technology sector.

“Technology has been a dominant stock market sector for much of the last decade, with artificial intelligence being the most recent theme driving most of the US equity returns in 2023,” he says.

“In an innovative growth sector like technology, investors much be wary of stock valuations and the stock specific risks that come with such a sector.

 “We would suggest looking at the UK Investment trust sector to take advantage of the current discounts to NAV’s whilst gaining exposure to a portfolio of technology companies reducing the stock specific risk.”

He suggests the HG Capital Trust (HGT), which currently trades on a 21% discount to NAV but offers investors exposure to a portfolio of global private equity companies with a particular tilt towards European software and technology companies rather than having a US bias.

Alternatively Scottish mortgage investment trust (SMT) is trading on a 17% discount to NAV. The trust has a strong bias towards disruptive global technology companies. Around a third of the portfolio is linked to companies involved with artificial intelligence with chip designer Nvidia and chip equipment supplier ASML featuring in the top five of the trust’s portfolio.

Users of iPhones are being offered an easier way to keep an eye on their bank account balance.

Many smartphone users will have banking apps on their phone that let you monitor your spending and send and receive money.

But logging in can be time consuming as you need to remember passwords and often go through two-factor authentication such as receiving text messages to confirm your own identity.

That can be frustrating if you just want to know how much is in your account.

A new Apple Wallet feature allows users to connect their credit and debit cards already stored in the Wallet app to their online accounts.

Users will then be able to see their up-to-date balance and other information without having to go to their dedicated banking app.

We have all the details on how it will works and whether it is safe.

How to check your bank balance in Apple Wallet

Many smartphone users are familiar with using their device to make contactless payments.

You upload your card details to your phone’s wallet and simply tap to pay.

The new feature will link these cards to the rest of your account information using open banking technology.

This effectively gives other parties access to your financial data to help you have more control of your money.

It is available if you bank with Barclays, Barclaycard, First Direct, Halifax, HSBC, Lloyds, M&S Bank, Monzo, NatWest and Royal Bank of Scotland.

The information will be accessible in the Wallet app, but will also appear when a user makes a purchase via Apple Pay online or in the app.

Apple said the new feature could help users make more informed purchases and get quick, simple access to see key information about their finances to help with budgeting.

iPhone users running the latest versions of iOS 17.1 will have access to the technology.

How secure is Apple Wallet?

The tech giant said the new feature had been built with privacy and security in mind and highlighted that before it is enabled users must authenticate through their financial provider’s website or app and consent to connect their accounts to their cards in the Wallet app.

Apple also confirmed that all user account balance information, transaction history and other account details are stored on device and not on Apple servers.

"By enabling users to conveniently access their most useful account information within Wallet and at the time of their purchase, they can make informed financial decisions and better understand and manage their spend,” says Jennifer Bailey, vice president of Apple Pay and Apple Wallet.

"We look forward to working with UK partners under the Open Banking initiative to help users better their financial health, and provide more ways in which banks can deepen their relationships with customers."

Stocks related to artificial intelligence (AI) have been leading the market higher this year, with names such as Microsoft, Nvidia and Apple jumping between 33% and 218% year to date. These gains are reminiscent of the dotcom bubble in the late 1990s. I’m not entirely convinced we’re in a similar position, but we are certainly in a peculiar market.

Nvidia, the big daddy of AI, is trading at 232 times trailing earnings. That’s some multiple to “grow into”. But one stock does not make a bubble. As analysts at ETF firm WisdomTree point out, a composite tech index that includes stocks from different sub-sectors is trading at below 30 times forecast earnings today, compared with 55 times in the 1990s. That’s not cheap, but it is not a bubble.

Investment theory suggests that the more diversified you are, the better the risk levels and the more opportunity to capture what’s called market breadth. However, the AI buzz hasn’t been that broad or diversified – it’s really just about a handful of stocks. What’s more, I would argue that most investors who put money to work in AI-related stocks are not long-term investors. They are chasing momentum, which is a respectable strategy until it falls over. 

If you believe – as I do – that AI will have a huge influence over many sectors, then frankly AI falls away into the corporate noise – the businesses that use it smartly will probably be the very biggest tech-enabled firms with access to deep wells of capital. They might not be clever AI start-ups or even the giants such as Nvidia or Microsoft (where you could argue that the disruption is already priced into the share price). 

In simple terms, the momentum trade was, and maybe still is, just buying a handful of stocks in the short term. Later, one would bet on US mega caps because of their easy access to liquid capital markets to fund innovation.

3 ways to profit from AI

An alternative strategy is to try to pick stocks that will play the broadening out or diffusion trade – ie, the next generation behind Nvidia and Microsoft. That’s where the AI exchange-traded funds (ETFs) will undoubtedly come into play, such as the iShares Automation and Robotics ETF (LSE: RBOD), the Legal & General Artificial Intelligence ETF (LSE: AIAG), the WisdomTree Artificial Intelligence ETF (LSE: INTL) and the Global X Robotics and Artificial Intelligence ETF (LSE: BOTZ).

Another possibility is to try to out-think these ETFs and draw on the best ideas of active managers who are closely watching AI trends, such as the Polar Capital Artificial Intelligence Fund. For instance, Citywire has a tool called Fix the Future, which looks at the stock picks of the top active fund managers. You can screen managers based on sectors and themes, such as exposure to AI and automation. This screen gives you a handful of very familiar names, such as Alphabet and Tesla, as well as other large caps that use technology, such as Raytheon and Accenture. But it also throws up a whole bunch of less familiar names, many of which are in the aerospace and defence industry, such as Aptiv, Safran, Hexcel, AAR, and VSE. 

If none of this excites you, I’d suggest one very left-field idea: back the venture capitalists who are investing in tomorrow’s ChatGPT. Most of the listed venture-capital plays in the UK, such as Molten Ventures (LSE: GROW), are pushing the focus of their portfolio towards AI and automation in some way. 

A minnow fund called Forward Partners (LSE: FWD) is making a huge bet on AI, with many if not most of its portfolio companies “classified as AI, being businesses that are either applying AI or have generative AI products in market or near launch”. With its share price down at 24p, the market is currently applying an 80% haircut to the value of a portfolio. It’s risky, but that haircut leaves a wide margin of safety for investors. 

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Investors are increasingly buying into the AI trend, while their love affair with Tesla continues, according to new data showing the most popular stocks of 2023.

Interest in Netflix, on the other hand, has plummeted, and the streaming giant is no longer in the top 10 list of most traded stocks.

The investment platform Saxo reveals that Tesla is the most traded stock by UK clients so far this year (from 1 January to 18 July), continuing its dominance as the number one share.

Amazon and Apple have switched places, with Amazon now in second place, and Apple third.

However, perhaps most notable is two AI stocks that are climbing up the top 10 ranks. Nvidia has edged into the top five while Palantir Technologies, which didn’t make the top 10 for the same period in 2022, ranks ninth for 2023. 

Meanwhile, Netflix has crashed out of the top 10, suggesting it could be struggling in the streaming wars against newer competitors. It has also made significant changes recently to its account models like cracking down on password-sharing. 

Anaam Raza of investment platform Saxo says that AI companies like Palantir Technologies and Nvidia becoming some of the most popular rising investments of 2023 “does not come as a surprise considering the overwhelming interest in this industry and megatrend”.

She adds: “The fast-growing nature of AI, which has been a hot topic both inside and outside of the world of trading, makes it an attractive option for investors to back. 

The competition will no doubt grow fierce in the second half of 2023 as companies put cash behind the ever-innovating sector in an effort to keep up with the big players, such as the success of OpenAI’s ChatGPT.”

Holly Mackay, founder of the financial website Boring Money, calls it an “AI frenzy” and says in her blog that the share prices of Tesla and Nvidia have shot up this year. 

“Tesla has accelerated by over 100% and Nvidia has swollen its waistline by 190% since January,” she comments. “Nvidia recently joined the exclusive $1 trillion market capitalisation club, nipping at the heels of Amazon and getting closer to Alphabet, Facebook and Apple. 

Collectively these five companies (which I like to summarise as NAAAF) make up one-quarter of the S&P 500 and have accounted for almost all of its gains this year. So it’s a pretty polarised story that can be loosely summarised as AI = good and Everything Else = bad.”

The Saxo data also shows that Microsoft has held its spot in fourth place, while Mark Zuckerberg’s Meta slipped two places from fifth to seventh in a year that saw the company make significant job cuts after reporting earnings were down at the latter end of 2022. 

Alphabet, Alibaba and Rolls-Royce make up the rest of the top 10, taking the sixth, eighth and tenth spots respectively. Last year, BP was in ninth position but it has now disappeared from the top 10.

In terms of Netflix’s departure from the top 10, Raza comments: “This indicates Netflix may be losing the streaming wars in what has become quite a saturated market for consumers. 

With the company recently also announcing changes to its subscription model for new users and the scrapping of its basic ad-free tier, investors may have doubts about the stability of Netflix’s future.”

“The worst of the post-pandemic hangover is fading” for Big Tech, says Meghan Bobrowsky in The Wall Street Journal.

Technology shares became overheated during the first 18 months of the pandemic as the world rushed to work online; tech firms “believed their own hype and over-expanded” says Tom Stevenson in The Telegraph. Reopening and rising interest rates proved a tough wake-up call last year.

Between March and December 2022 Amazon’s shares lost half their value, while Apple’s market cap slipped from $3trn to $2trn. But Big Tech has bounced back: just five tech stocks are responsible for 66% of the S&P’s 8% rise so far this year. The tech-focused Nasdaq 100 index has surged by 22% since 1 January, while Facebook-owner Meta has vaulted by 87%.

The US equity market is once again dependent on the fortunes of a handful of giant businesses.

First quarter reassures

Alphabet, Amazon, Meta and Microsoft recently reported first-quarter revenue growth rates of 3%-9%, say Richard Waters, Elaine Moore and Patrick McGee in the Financial Times. That is “a far cry from two years ago” when the lockdown boom “boosted Big Tech’s combined revenue by 41%”. But it was still an improvement from poor fourth-quarter levels, as cloud computing demand and PC sales slumped. The results have reassured investors that the tech rout is over.

“Global digital advertising spend is holding up” better than feared, says Lex in the same paper. Margins have been improved by “heavy cost-cutting via lay-offs”, while investors are excited by the “tantalising prospects from artificial intelligence” (AI).

The race for AI won’t be cheap. One estimate suggests AI spend will hit $800bn over the next ten years. That will only grow the gap between the tech giants that have the cash to splurge on aggressive research and smaller firms “such as Zoom and DocuSign” whose shares “remain in the doldrums”. “Companies can’t cut their way to prosperity,” says Tae Kim in Barron’s.

Rebound rebuttal

This year’s tech lay-offs risk improving margins today at the expense of revenue growth tomorrow. After dipping last year, valuations are once again eye-watering: “Big Tech stocks are trading at 20 to 70 times 2023 earnings while growing at single-digit rates – not a good combination for future returns.”

America’s Nasdaq index has rebounded 20% from its 2022 low, prompting some to talk of a new bull market, says Russ Mould of AJ Bell. Yet it remains 24% below its 2021 peak. The rally is reminiscent of the 2000-2003 bear market, during which the index staged nine separate rallies.

Yet the Nasdaq didn’t get back to its March 2000 peak until 2015. “It is highly unusual for the leaders in the last bull market to be the leaders in the next one.” Tech investors should “proceed with caution”.

One of the consequences of the dominance of the mega-cap growth stocks in the US over the last decade or so is that there is a huge amount of concentration risk. Many funds own the same stocks because they use the same investment process, which is to buy growth stocks, no matter where we are in the economic cycle.

The VT Tyndall North American Fund takes a different approach. It looks first at where we are in the business cycle, and then constructs the portfolio accordingly. There are times when growth as an investment style does not work – 2022, for example – and it is important to avoid periods of major stock market declines in order to bolster long-term returns: the Nasdaq slumped by 33.1% last year.

The fund seeks to differentiate in terms of the stocks we hold as well. We sold our last mega-cap tech stock in late 2020, and since then we have avoided Facebook (now Meta), Amazon, Netflix, Microsoft, Apple, Google (now Alphabet), and Tesla.

This positioning has been undertaken for fundamental reasons, partly because I think the best days are behind these stocks, but also because history shows us that when a group of stocks comes to dominate a market, their dominance does not last forever. Stocks move in cycles, just like the economy, and an era of outperformance always ends. Think back to the hero stocks of bygone decades: Cisco, IBM, GE, and Intel have been massive underperformers since their time in the sun ended.

Formula One roars ahead in America

In looking for stocks that are not widely owned by other funds and that have great long-term potential, I’ve picked out three stocks. The first is Liberty Media Corp. Series C Liberty Formula One (Nasdaq: FWONK), which owns the Formula 1 franchise. This stock gives investors exposure to one of the fastest-growing sports in the world. The Netflix documentary Formula 1: Drive to Survive has dramatically increased the sport’s popularity in America and made household names of the teams, drivers and owners. There are already two Grands Prix in the United States, Austin and Miami, and this year they are adding a third race in Las Vegas, which promises to be a global spectacle.

MGM Resorts International (NYSE: MGM) is a hotel and casino company. After a tough couple of years post-Covid, it’s now seeing its core market of Las Vegas getting much stronger. Weekend visitation has long since recovered, but the big change now is that the convention business is returning. This helps fill rooms during the week and boost revenue per available room. The F1 race in November will be a major event for MGM with its exposure to The Strip, the four-mile street with the most hotels and casinos, and I expect it to be a significant driver of revenue and earnings in 2023.

Cleaning up the competition

Clean Harbors (NYSE: CLH) specialises in hazardous waste disposal and environmental services. It operates in a highly regulated sector, which to a large degree protects it from new competition. Scale and reputation are prized in this sector, as no client wants to have to do the job twice, and this is where Clean Harbors has a clear advantage as the leader in its field. New environmental regulations are a key long-term theme in this sector as they are catalysts for growth, and this stock is a core holding.

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Following the news that Microsoft has invested a "multibillion-dollar" sum, as much as $10bn in ChatGPT bot maker OpenAI, valuing the business at $29bn, we thought our readers might be interested Dominic Frisby's views on this game-changing technology.

Investors need to keep an eye out for the latest innovations like ChatGPT. The best investment funds are continually looking for new ideas that could change the world.

I’ve been playing with a new technology this week, which, I think, is as potentially transformative as Google’s search engine, Facebook’s network or Apple’s iPhone. It’s that significant.

Elon Musk says it’s “scary good”; Google management is so worried about it they have issued a “code red”; and it has achieved in just five days what took Netflix three and a half years.

And it’s going to put me out of a job.

This is Open AI’s latest offering ChatGPT - short for Chat Generative Pre-trained Transformer.

ChatGPT is a, free, powerful tool for users

OpenAI, if you are not familiar with it, is a research institute that develops artificial intelligence.

The company has developed language models that can generate human-like text and neural networks that can create images from text descriptions. Its founders include many of the world's most famous tech entrepreneurs, not least Elon Musk, and it is funded by private donations and research contracts. Its lofty “ultimate goal is to benefit humanity through the responsible development of AI”.

I first heard about ChatGPT from my son when he came back from university over the weekend.

Apparently, loads of students are getting it to write their essays for them. Academics, reports the Guardian, say it generates exam responses that “would result in full marks if submitted by an undergraduate”.

Programmers meanwhile, the Guardian continues, “have used the tool to solve coding challenges in obscure programming languages in a matter of seconds – before writing limericks explaining the functionality.”

I was discussing it on Twitter and User @Peng33G got it to write a perfectly passable song in the style of Dominic Frisby.

I urge you to go and have a play.

To give you an idea of how quickly this thing has found users, cast your eyes over the following, which shows the amount of time to reach one million users.

• Netflix → 3.5 years
• Airbnb → 2 years
• Facebook → 10 months
• Zoom → 9 months
• Spotify → 5 months
• Instagram → 2.5 months
• iPhone → 74 days ChatGPT → 5 days

My buddy, business consultant and tech entrepreneur, Danny Richman, mentors, as he puts it, “a young lad with poor literacy skills who is starting a landscaping business. He struggles to communicate with clients in a professional manner.”

In less than 15 minutes, with no coding required, he created a ChatGPT-powered Gmail account to which the landscaper sends a message. It responds with the text to send to the client.

Original text:

Sally I am starts work at yours monday from dave

Business version:

Dear Sally,

I hope this email finds you well. I am writing to let you know that I will be starting work with you on Monday. I am really looking forward to getting started.

If you have any questions or need help with anything, please don't hesitate to get in touch.

Best wishes,

Dave

Danny continues: “I also helped him use GPT3 to prepare an estimate, create a contract and respond to client enquiries. He just secured his first contract worth £220,000. This would not have been possible without this tech”.

How to use ChatGPT in the real world?

So what will ChatGPT be used for?

In the words of ChatGPT itself, “A wide range of natural language processing tasks, including language translation, text summarization, text generation, and language modelling.

So that might be chatbots and virtual assistants; “text generation tasks”, as it puts it - writing news articles or social media posts.

It could also be used to summarise texts - anything from legal documents to the tax code to the bible, by generating a shorter summary of a longer piece of text.

Its capabilities are likely to improve as it is further developed and refined. It is learning all the time.

So what does all this mean for investors? And how do you invest in ChatGPT?

How to invest in ChatGPT the technology shaping the world

Earlier in the week, I looked at how the world’s largest companies by market cap change from decade to decade.

Seven of the top ten in 2011 were natural resources companies. A decade later, in 2021 not one was. Nine were tech companies: Apple, Microsoft, Alphabet, Amazon, Facebook, Tesla, Berkshire Hathaway, TSMC, Tencent Holdings, Nvidia. Which of them will be there in 2031?

Many of these, you might have thought a year ago, have near-impervious monopolies. But tech changes quickly, as this latest development demonstrates. Already Alphabet’s position looks precarious.

Microsoft, though, was there in 2011 and in 2021. And guess what? It owns a large chunk of Open AI. It has made a number of investments in OpenAI, including a $1 billion investment announced in 2019. It is not known if Microsoft has a controlling stake in OpenAI or if it holds a minority stake in the company.

So the way to get some exposure to this new tech is to own Microsoft Corporation (NASDAQ:MSFT), though it’s not exactly a pure play. Its stake in Open AI is minimal in the context of everything else it does. Moreover, will Microsoft still be one of the world’s ten largest companies in 2031? That would make three decades in a row.

I also gather it is costing a lot of money to run. $3m per day is the figure doing the rounds on the internet. The bot itself would not confirm: “GPT is a large language model that requires significant computational resources to run, as it is trained on a very large dataset and has a very large number of parameters. As a result, it is likely that running GPT would incur significant costs, depending on the specific circumstances”.

But that’s the way with big tech. Get the users first, then worry about the profits. ChatGPT is doing that in spades. If the product is free, you are the user - and all that.

By the way, I got ChatGPT to write some of this article for me (though I ended up subbing it quite a bit). Can you tell which paragraphs?

Tech stocks dominated the market in 2021 as demand for the industry’s services exploded.

At the end of 2020, management consultancy McKinsey noted that digital adoption in the pandemic took a “quantum leap” forward as businesses and consumers had no choice but to work, shop and play online.

Nowhere was this trend more apparent than in the performance of the market’s top tech stocks, the so-called FANGs.

Led by the FANGs, tech stocks see revenues surge

The FANG group of tech companies, Meta (Nasdaq: FB) (formerly known as Facebook), Amazon (Nasdaq: AMZN), Netflix (Nasdaq: NFLX) and Alphabet (Nasdaq: GOOG) (the parent company of Google) collectively reported revenues of $532bn in 2019.

By the end of 2020, revenues across the group had jumped by 28% to $680bn. And by the end of 2021 that figure was $876bn, up 29% year-on-year and 64% since 2019.

Investors celebrated. The NYSE FANG+ Index, which provides exposure to the FANGs as well as Microsoft (Nasdaq: MSFT), Apple (Nasdaq: AAPL), Baidu (Nasdaq: BIDU), Nvidia (Nasdaq: NVDA), Alibaba (NYSE: BABA) and Tesla (Nasdaq: TSLA) doubled in 2020 and rose a further 22% in 2021.

But these tech stocks are now falling out of favour with investors. Since the start of this year, the FANG+ Index has slumped by 46%, erasing all of 2021’s gains and taking it back to the level last seen in June 2020.

Meta has been the worst performing stock by far this year. The stock is off more than 70%.

That’s the sort of return you might expect from a struggling penny stock, not one of the world’s most successful (and profitable) tech companies.

Investors lose faith in tech stocks

Analysts are not short of reasons to explain why the market has fallen out of love with these businesses. They point to rising interest rates, disruption, slowing growth and a rotation away from growth to value stocks.

But I think there’s a much simpler explanation. The market was just too overexcited about their prospects, something even the companies themselves are now starting to admit.

This week Meta announced it’s planning to cut 13% of its workforce around the world. CEO Mark Zuckerberg said the cuts were “the most difficult changes we’ve made in Meta’s history” and he went on to say the company was having to make these changes as the firm’s pandemic growth had not lasted.

“Many people predicted this would be a permanent acceleration,” he wrote, referring to Meta’s revenue growth during the pandemic. “I did too, so I made the decision to significantly increase our investments.”

Meta’s revenues jumped from $70bn in 2019 to $118bn for 2021 and Wall Street analysts were forecasting further growth in 2022. They’d pencilled in earnings growth of around 15%.

However, Wall Street is now expecting a slight decline in revenues from the company in 2022 and a staggering 33% decline in earnings.

A lot has changed for these tech stocks in a year.

Growth slows and cuts arrive

It’s not just Meta. Netflix’s growth engine has spluttered as competition has increased and the company has responded by launching an ad-supported version of its platform.

Google is struggling with a slowdown in digital advertising spending and this week Apple has told its suppliers to slow production of its new iPhone14. It has cut orders by three million units.

The e-commerce giant Amazon has also been forced to put its growth plans on hold. Earlier this year Fortune reported Amazon had “killed plans” to open 42 order fulfilment facilities and delayed opening an additional 21 locations.

These tech stocks have had to re-adjust their growth plans, and as a result, the market has had to re-adjust its perception of them.

Meta, Amazon, Apple and Netflix are no longer expected to generate double-digit sales and earnings growth indefinitely. Therefore, they no longer deserve a premium valuation

Could now be the time to buy tech stocks?

When valuing a business, analysts often try to estimate its future profits and work back to estimate how much these would be worth today. In theory, the higher the future potential profit stream, the more investors are willing to pay today.

So, when analysts revise their estimates for future growth lower, that will be reflected in the company’s current stock price.

That’s exactly what we’ve seen happen with these tech stocks over the past 11 months.

However, as the famous investor Benjamin Graham once said, “there are no bad assets, just bad prices.” In other words, everything has its price.

The fact is, none of these companies are going anywhere anytime soon.

Google remains the world’s go-to search engine, and the company’s cloud business serves millions of customers around the world.

Meanwhile, Amazon has built a global logistics giant, investing hundreds of billions of dollars over the past three years alone to develop its edge (it also has a highly profitable cloud division). Fellow FANG+ members Microsoft and Apple exhibit similar qualities.

Apple isn’t the world’s largest smartphone manufacturer, (that crown belongs to Samsung) but the company’s brand is one of the most valuable in the world, and consumers are willing to pay more to be part of the Apple ecosystem.

These companies are still at the top of their game. All that’s happened over the past year is growth expectations have shifted.

At some point their valuations will hit a level whereby the slower rate of future growth is fully reflected in the shares. When that happens, it could be the time to buy tech stocks.

Apple Store inventor Ron Johnson is given to Zen-like aphorisms that slightly miss the mark – instructing employees, for instance, to “ruthlessly eliminate hurry”. It adds to a sense of mixed messages. Beneath his trademark Midwestern calm, a colleague once observed, is “a boiling cauldron” that has powered a career of extremes.

Fêted as a revolutionary retail genius at Apple, Johnson bombed from hero to zero during a disastrous 18-month run at JCPenney, which, a decade on, still makes the lists of great management cock-ups. Ever since, says the New York Observer, he’s “been on a quest for redemption”.

Johnson’s attempt to revolutionise shopping

To his credit, Johnson shrugged off his humiliating firing, almost immediately securing Wall Street backing for a new venture that tapped his famed ability to put the “humanness” into tech support.

Enjoy Technology, which launched in 2015 when the “Uberisation” of everything was in full swing, was billed as “the next big thing in disruptive retail”, says Retail Dive.

Strip out the jargon and the essential offer was “a mobile store” – featuring a fleet of vans crammed with gadgets and empathetic geeks, bent on maximising that crucial “last-mile” opportunity to upsell. “What we’re trying to do,” said Johnson, “is to deliver unimagined customer service. It’s better than a store, it’s the same price as online, and it’s faster than even Amazon Prime.” In early 2020 Forbes declared that “this start-up may be his crowning achievement”.

Still, having set out to disrupt retail, Enjoy got disrupted itself. Nine months after scrambling onto the “blank-cheque” initial public offering bandwagon via a merger with Marquee Raine Acquisition, valued at $1.1bn, it has filed for bankruptcy, says the Financial Times. Johnson’s great comeback vehicle has evaporated into just another statistic of the Spac bust.

Humble career beginnings and a call from Apple

Now 62, Johnson started out humbly – after gaining a BA from Stanford and an MBA from Harvard – by taking a trainee position with Mervyn’s, a “middle-scale” Californian department-store chain, before moving back to Minnesota to join Target. It was here he made his mark as a moderniser, says Retail Dive: signing a series of design partnerships that turned Target into “Tar-zhay”, an aspirational, middlebrow mega-retailer, using “a playbook” that H&M, Uniqlo and many others have since copied. From there it was a short step to being headhunted by Apple in 2000.

If Ron Johnson made Target “hip”, he made Apple stores “the envy of retail”, says Forbes – eventually boasting “far higher sales per square foot than even luxury retailers such as Tiffany and Saks”. Johnson’s gamble was to put a computer shop among these swans in the guise of stylish, but approachable, temples of Apple technology. His new “Genius Bar” format upended accepted perceptions of dire technical support.

Decades after this “hyper-successful” retail gambit, Johnson was still name-dropping his “famed mentor” Steve Jobs, says the FT. Arguably he had every right to, says Fast Company. “The resurgence of Apple in the early 2000s is at least partially due” to the way Johnson “revolutionised the computer shopping experience”.

The Steve Jobs playbook

When the established but dowdy department chain JCPenney secured Johnson’s services in 2011, it seemed all its Christmases had come at once. Yet in record time, he inflicted wounds from which it is still recovering, says the New York Observer.

In keeping with Jobs’ “disdain for focus groups”, Johnson dispensed with customer surveys – spending big on a new regime that swept away favourite brands and an old-fashioned, but popular, coupon system, says Fast Company. Sales plunged, as did the shares – prompting Johnson’s early eviction.

Hopes that Enjoy Technology would mark a return to form have, at least temporarily, been dashed. Now in Chapter 11 bankruptcy, the firm’s future is up in the air.

“I have learned from many, but the most powerful lessons I learned came from working… with Steve Jobs,” Johnson said last year. “He taught me that when you deliver the highest quality you can imagine, you will have a great business forever.” Not always.

There have been rumours for years; there have been presentations, speculations, and occasionally even a minor product launch, but now it is finally happening: the technology giants are making their long-awaited push into healthcare.

As so often, Amazon led the way, paying $3.9bn for One Medical in the US, a primary healthcare organisation that covers almost 800,000 people across 25 states. For Amazon, it is a huge step up in its attack on the medical market. It bought online pharmacy PillPack for $750m in 2018 and since then has started selling through its own pharmacy as well. But this is the first time it has taken control of a major healthcare provider.

Apple has similar ambitions. Last week, the company set out its strategy for making healthcare its next major expansion, with devices, apps and services based around its existing products. There is speculation that it may make a similar acquisition to Amazon. Google has also targeted the industry, as has Meta. Healthcare is shaping up to be a major battleground for some of the world’s biggest and richest companies.

Eyes on the prize

It’s not hard to understand the attractions. In most countries, healthcare provision is inefficient and expensive, with outcomes that could be vastly improved. The sector could certainly use new technology and new ideas, in management and delivery as well as drugs and treatments. And it is a huge industry, accounting for 10% of GDP in most countries, and even more in the US. With populations ageing, it is only going to grow. Even a tiny slice of the market will be valuable.

The problem, however, is that this will take the tech giants into dangerous political territory. “The deal will expand Amazon’s ability to collect the most intimate and personal information about individuals, in order to track, target, manipulate and exploit people in ever more intrusive ways,” warns the Open Markets Institute, an organisation that campaigns for stricter competition regulation.

There is truth in that. It is one thing to monetise our record of browsing for new phones or holidays and then use that information to feed us advertisements or recommendations for different products. That happens all the time, and we more or less accept it as the price we pay for all the free products we get from the internet. It is a different matter to collect and manipulate our health records – there is a reason why doctor-patient relationships have always involved a degree of confidentiality. The tech giants can promise to respect that, but they have been so cavalier with the use of data in the past, and so reckless about finding ways of making money from it, that no one is likely to believe them.

It’s not like slinging books

The political scrutiny will be intense. Even in a relatively free-market system such as the US, the government is a major player and in just about every other developed country in the world it is the dominant force. It’s one thing to disrupt the market in books, music, clothes or food retailing – they are already very competitive markets – it is something else to open up hospital services, GP surgeries, or even pharmacies to new ideas.

On top of all that, doctors everywhere have formed themselves into the fiercest trade unions ever seen. None of them will give up any of their privileges easily, and they invariably have the public on their side. Governments are not going to sit back and see how the dust settles – they will stop the process before it has even started.

The reality is that, if the tech giants become major players, they will invite intense regulatory scrutiny and provoke a political backlash. Most of the major tech companies are already skating on very thin ice, with lots and lots of governments, regulators and activists demanding that they be broken up, that they pay more taxes, and that their power be curbed. Healthcare could easily be the tipping point: the moment when all that talk finally turns into action. It is not worth it – and if the likes of Apple and Amazon don’t get that they will have big problems in the years ahead.

“‘Made in Vietnam’…is making its mark on the global stage”, says investment fund Vietnam Holding. “Manufacturers from all over the world are looking at Vietnam as part of their relocation strategy to effectively diversify and reduce supply chain risks”. Apple recently moved some iPad production into the country, joining firms such as Samsung and Intel that already have a significant presence, partly in response to manufacturing delays caused by lockdowns in China.

The textile industry is also booming, says Tomoya Onishi in Nikkei Asia. Exports are on course to hit an all-time high of $22bn in the first half of 2022, a 23% rise on last year. Numerous free trade deals and the post-pandemic boom in the West have turned Vietnam into the world’s second-largest clothing exporter.

Things looked very different last summer, says Rodion Ebbighausen in Deutsche Welle. A surge in Covid-19 cases saw the likes of Samsung, Apple, Nike and Zara forced to close factories for weeks. GDP fell 6% year on year in the third quarter. But since then Hanoi has taken “a pragmatic approach”, helped by the use of Western vaccines (unlike China).

That has enabled a reopening that contrasts markedly with the situation in China, says Daniel Müller of the German Asia-Pacific Business Association. Even Chinese electronics groups “are moving facilities to Vietnam”.

Still, Vietnam faces plenty of economic challenges of its own. Deep integration with global supply chains leaves it vulnerable to ongoing disruptions emanating from Shanghai. With foreign trade representing 209% of GDP, the country is also heavily exposed to fluctuations in world trade.

Cleaning up Vietnam’s Ho Chi Minh bourse

Corruption is also a big weakness, says Philip Heijmans on Bloomberg. The ruling Communist party has recently launched a crackdown – including firing the head of the Ho Chi Minh bourse and the chair of the State Securities Commission – over claims of market manipulation and “illicit profits” on the exchange. In a “closely controlled, one-party state” it can be difficult to know what is really going on, but the firings appear to signal a desire to clean up the exchange.

However, that seems to have rattled investor confidence. The benchmark VN-Index is now down by 21% since its January peak, after a superb run that saw it gain 120% from its lows in late March 2020.

Still, while domestic retail investors have retreated from the market, foreign institutions seem to be “buying the bear”, says VinaCapital Vietnam Opportunity Fund. Foreigners were net buyers of another $151m in stocks in May after buying $175m in April. And, importantly, the sell-off has brought valuations down to just 12 times expected 2022 earnings – not a bad price for a country where GDP looks set to grow by at least 6.5% this year.

The European Commission has announced new rules covering mobile phones and several other kinds of consumer electronics goods that mean products sold in the EU will have to be fitted with a standard USB type-C charging port.

The new rule (assuming it is signed off by the European Parliament and European Council) will take effect from the autumn of 2024 and will initially apply to “small and medium-sized portable electronics”, including tablets, headphones and headsets, handheld videogame consoles, e-readers and portable speakers, as well as mobile phones.

Laptop computers will also be included, but manufacturers are being given longer to make the necessary changes: 40 months from when the changes get approved, which is expected to be this autumn.

What’s the idea?

The changes mean that in future consumers will only need a single, separately sold charger to power all kinds of products from all the different manufacturers – saving them money and hassle and cutting waste.

The idea, according to the EU, is to “make products in the EU more sustainable, to reduce electronic waste, and make consumers’ lives easier”. The EU calculates that the measure will save consumers “up to €250m a year on unnecessary charger purchases” and eliminate 11,000 tonnes of waste per year.

The biggest loser is Apple; the US giant already uses USB-C charging on its laptops and a handful of iPad models, but its iPhones and less expensive tablets use its proprietary Lightning ports and chargers, which will no longer be acceptable in the EU.

What will Apple do?

When the plan was first floated last September, Apple claimed that regulation mandating just one type of connector would “stifle innovation” and harm consumers. In practice, though, it will have to comply – and work out whether it’s worth making separate models for the EU and non-EU markets.

“I think the most likely outcome here is that Apple will shift the iPhone to USB-C globally rather than manufacture two slightly different designs,” Aaron Perzanowski, law professor at Case Western Reserve University, told The Washington Post. “If that’s right, it’s another powerful illustration of the Brussels effect, and one that has broader implications,” he said.

What is the “Brussels effect”?

It’s the term coined by Anu Bradford, an American professor of international trade law, to describe the way in which the EU has quietly become a global regulatory superpower – with rules governing everything from timber production in Indonesia to internet privacy in Latin America.

The EU manages to wield disproportionate global influence by making access to its market of roughly 450 million consumers conditional on compliance with its standards – which are typically more stringent than other jurisdictions, and aimed at facilitating interoperability and free trade across the 27-nation bloc.

Companies adopt the standards as the price of selling into the huge EU market, and then often choose to impose them across their global businesses to save on the costs of running two or more compliance regimes. Sometimes, though not always, these rules are then codified by non-EU governments or international organisations.

For example?

Bradford’s 2020 book, The Brussels Effect, traces the phenomenon back to the early 2000s and the chemicals regulation regime known as Reach. Other major areas are food safety and environmental stewardship. But the biggest recent example was in the field of data privacy and regulation, where the EU’s GDPR rules have been widely adopted around the world.

Tech giants such as Facebook and Google have adapted their business models to suit the new standards stemming from the EU Digital Market Act, drastically cutting their options for monetising consumer data, says economist Renaud Foucart on The Conversation. “Companies are not obliged to apply EU law globally, they often simply find it easier to do so.”

What sectors are next?

In the field of technology, the EU’s explicit mission is to “protect EU values and counter external dependencies and threats from artificial intelligence and hacking” by dominating standards. But the Brussels effect also extends to more mundane and tangible fields such as clothes and furniture.

Last month, for example, EU regulators announced proposals for new textiles regulations that would have a massive impact on the global industry by, in effect, declaring war on the “fast fashion” culture of cheap, throwaway garments. The EU Strategy for Sustainable and Circular Textiles would force companies selling in the EU to comply with rules governing everything from how long a garment lasts, to how much recycled yarn it contains.

Will this “effect” last?

The EU’s regulatory dominance is a relatively recent affair, says The Economist, and there are reasons to doubt its permanence.

First, its share of the global economy is likely to fall in the coming decades, cutting the world’s incentive to follow Europe’s rules. Second, in some contexts, technological innovations – such as 3D printing – could cut the costs of abiding by both European and other standards. Moreover, in some areas, “high standards may become a curse, rather than a virtue”. For example, in the AI field, companies under sketchier regulatory regimes “may build an insurmountable lead via unethical experimentation”.

One day the Brussels effect may be replaced by the Beijing effect, but the shift looks some way off. “Countries are increasingly forced to pick a sphere of influence. When the other choices are an erratic America and an undemocratic China, the EU has something to offer.”

To say that 2022 hasn’t been a good year for technology stocks would be a bit of an understatement. Most of the leading names such as Apple, Amazon, Alphabet, Microsoft, Meta Platforms and Netflix have slumped. Netflix is now down nearly 75% from its peak. Lots more damage has been done outside the top names: the tech-heavy Nasdaq Composite index is down 30% from its highs and more than 45% of its constituents are down by 50% or greater.

Still, the Nasdaq remains far higher than it was before the start of the pandemic – it’s up by about 25% since the beginning of 2020. This raises the question as to whether a longer-term technology bear market has only just begun, or whether this is just a blip in a wider bull market and an opportunity to pick up technology shares at a cheaper price.

To understand what is going to happen in the future, it is important to understand what lay behind the very strong tech bull market of the last decade. “There have been two main fundamental drivers,” says George Boyd-Bowman of the Liontrust US Opportunities Fund. First, the rise of the digital economy has created a “powerful demand backdrop”. Many of today’s largest tech companies have been at “the forefront of providing the building blocks of the digital world as we know it”. Amazon and Microsoft created Amazon Web Services and Azure to allow the ongoing shift to the cloud. Google (now Alphabet) and Facebook (Meta) were the key forces behind digital advertising and social media.

At the same time, several new business models emerged. Many tech companies have reinvented themselves as platforms, offering a range of services. A prime example of this is Meta acquiring messaging service WhatsApp and photo-sharing app Instagram, in addition to Facebook, the core social network on which the company was founded. Another is the growing use of software as a service (SaaS), under which companies sell their products on a subscription basis, rather than in return for a one-off payment. These models have generated large margins and amounts of free cash flow, as well as extremely high levels of recurring revenue and potentially low levels of capital expenditure, says Boyd-Bowman. Investors tend to value this highly.

Beyond the technology

The long boom has been driven by some fundamental changes to the way we live and consume goods and services. But tech investors can’t ignore the fact that the sector has also been “supercharged” by “macro factors they couldn’t have predicted or indeed wished for in their wildest dreams”, says Boyd-Bowman. As well as Covid-19, which accelerated the use of e-commerce and remote working, these include an interest rate backdrop “supporting sky-high valuation multiples” and the “most benign market background conditions for fast growing companies” in a long time.

Indeed, the ultra-low interest rates created by accommodative central banks have been the big elephant in the room where technology is concerned, says James Penny of TAM Asset Management. This is because investors tend to value companies by their future cash flows, discounted to reflect how long these cash flows will take to appear. Since the discount rate is related to the interest rate, low interest rates “make future earnings a lot more valuable than they would normally have been under a more normal interest rate regime”. Throw in the fact that low productivity growth in the rest of the economy means that there are few alternatives for those seeking growth, and it’s not hard to see why tech shares became so attractive.

If low interest rates were one of the big reasons for the recent tech boom, then it’s only logical that interest-rate hikes by central banks now desperate to contain inflation are having the opposite effect, pushing down valuations and creating a “sour cocktail” for investors, says Boyd-Bowman. It’s significant that the big falls in tech shares have coincided with the “Fed pivot”, when the US Federal Reserve made it clear that it “was serious about getting on top of inflation” by choosing to start to hike rates. With the other major central banks, including the Bank of England, starting to follow, the days when near-zero bond yields led investors “to ascribe absurdly low discount rates to future revenue streams” seem numbered.

The removal of pandemic restrictions – while good for the rest of the economy – is another reason why tech stocks are falling, says Boyd-Bowman. This is because the return of people to physical shops and offices has caused the “Covid-induced sugar high” that it provided to certain companies to start to fade. Indeed, it’s become clear that “while many of the structural shifts that were in place before the pandemic are continuing to run”, they “aren’t necessarily going to do so at the supernormal rates we saw over the last couple of years”.

Why the market has soured

There’s also been a shift in investor expectations, says Penny. During the boom, many people “fell in love with the disruptive potential of these companies”, assuming that their success would continue, seemingly forever. This led investors to pile into them, driving up valuations to very high levels. However, in the past six months investors have started to become a lot less optimistic about the prospects of these companies.

Many of the biggest names of the boom period, such as Amazon and Netflix, have recently started to produce earnings and sales figures that have failed to meet the expectations of Wall Street analysts. As a result, many investors who have previously intended to stick with these companies in the hope of fast growth have decided “that now is a good time to take some of their profits while they can”, pushing down prices.

The big question is whether this decline will end up becoming a rout on the scale of the dotcom bust, where the Nasdaq lost three-quarters of its value between March 2000 and February 2003, or just another blip, followed by a quick recovery, like 2016, 2018 – or March 2020. Everyone agrees that much depends on investor sentiment – something notoriously difficult to predict. Anthony Ginsberg of GinsGlobal Index Funds is a relative optimist who doesn’t see this as a dotcom-era story, but “probably more similar to March/April 2020 at the start of Covid-19, when markets overreacted and panicked”. Markets are currently waiting to see whether the major central banks, such as the Federal Reserve, European Central Bank and Bank of England, are able to “successfully engineer a smooth landing this year”. Of these three, the US Federal Reserve is seen by technology investors as the most important. If the Fed is able to get US inflation under control, and do so without raising interest rates too high, then “sentiment on the US technology sector should improve, causing shares to rebound”.

Boyd-Bowman of Liontrust is also optimistic. He argues that while the lifting of restrictions has hurt many of the tech companies, it’s not on the scale of the dotcom bust where “the fundamentals of nearly every tech company imploded and many saw significant year-over-year revenue declines”. Meanwhile, the “Fed put” – the belief that the Fed would never let the stockmarket fall too far – has been replaced by a “private equity put”. Buyout funds are paying “healthy multiples” for some tech companies, says Boyd-Bowman. This year we’ve seen deals for virtualisation software firm Citrix ($16.5bn), cybersecurity and data-backup company Datto ($6.2bn), identity-management provider SailPoint ($6.9bn) and business-planning software group Anaplan ($10.7bn). This should help give investors confidence that the fundamentals are different this time, he argues.

Not everyone is convinced that there will be a soft landing. “This is like the start of the 2000-2003 tech crash,” says Jerry Thomas of Sarasin and Partners. Yes, the recent fall means that “valuations aren’t quite as crazy as they were during the dotcom era, and are much closer to fair value than they were only a few months ago”. It’s also fair to say that the companies in this tech boom “are much better than the 2001 vintage”. Still, history has shown that “negative sentiment tends to overshoot in the other direction”. What’s more, despite the market correction, there are still many “pockets of hype and expectation”.

Avoid the hype

There are a number of red flags that investors should note if they are looking for buying opportunities, says Thomas. For example, avoid companies “where the product they are selling is not differentiated from the competition, or where there are no barriers to entry”. This is especially important when it comes to mid-cap companies that lack economies of scale. Another big warning sign is companies that are “going on an acquisition spree outside their core areas in order to boost flagging growth rates” or are going through an “identity crisis”. However, perhaps the biggest group of tech companies to avoid is those with no real cash flow or earnings. These are still “super expensive”.

It’s not a good time to buy into companies where the investment case relies on earnings in the future rather than the present, “especially when the market is now focused on immediate profitability, and is much less forgiving of promises about the future”, agrees Neil Campling of Mirabaud Equity Research. And even companies that make money consistently might not be the best idea if they are still “priced for perfection”, as many still are. This is because they are not only likely to find that “any missteps... get punished hard”, but even if they meet their targets, they will suffer from “multiple compression” with investors simply less willing to pay huge multiples of current earnings.

In terms of specific sectors, Campling is particularly bearish about electric cars, where he thinks that there is a massive bubble. “Everyone in this area is now trying to become the new Tesla,” he says. That’s pushing down profit margins and leading to a lot of unproductive investment. What’s more, firms trying to enter this area are having to compete not just with other entrants, but all the major traditional manufacturers such as Volkswagen, General Motors and others, who have announced plans to move away from the internal combustion engine within the next decade.

A positive outlook for profitable firms

If Campling is bearish about shares that just promise fast growth without a clear plan for translating that into profits, he is much more optimistic about those which are not only currently profitable, but also have decent valuations. This is because this puts them at much less risk of investors cutting the earnings multiples they are willing to pay. The winning approach over the next few years can be best summed up by the idea of “growth at a reasonable price, rather than growth at any cost”, he says. And with inflation now a major worry, firms that “provide services enabling other firms to cut their costs” should do particularly well.

Investors are unlikely to go far wrong if they focus on “firms that will benefit from long-running themes which also have valuations that make sense”, agrees Thomas. While valuation is always subjective, one possible shortcut that investors can use to determine whether this is indeed the case is to compare a tech company’s share price with its position before the start of the pandemic in February. If the share price is at – or even better below – the pre-pandemic level, then this may be a good sign that it has not become overvalued as a consequence of the last two years, and may be worth considering as an investment.

In terms of specific sectors, cloud computing, the provision of data storage and IT services over the web, rather than on physical hardware directly controlled by the user, is one big theme to look at, says Ginsberg. The cloud-computing boom will also help boost demand for cybersecurity services, as not only are large American companies “shifting their IT spending increasingly to the cloud”, but they are also “demanding cybersecurity services be provided as part of any cloud-computing package”. What’s more, some of the big names in these sectors also stand to benefit from US government contracts in the near future.

It’s impossible to know how close we are to the bottom of this tech bear market. If the dotcom bust is any guide, there could be a long way still to go. However, the indiscriminate nature of these sell-offs means that long-term investors can usefully look for chances to begin buying profitable stocks, while leaving bottom-fishing in more speculative ones until later. We look at four that may already be interesting below.

Four tech stocks that still offer value...

Meta Platforms (Nasdaq: FB) owns the social network Facebook as well as a range of related apps, most notably the messaging service WhatsApp and the picture-sharing website Instagram. The company is now using some of the money generated by Facebook, which is an “incredible cash cow” says James Penny of TAM, to invest in the metaverse (a vision of a network of virtual worlds facilitated by virtual reality (VR) and augmented reality (AR)). While this investment “could end up falling on its face”, there are early signs that it “could be this generation’s Facebook”. Facebook trades at only 13.6 times forecast 2023 earnings.

Streaming service Netflix (Nasdaq: NFLX) has fallen a long way from its peak valuation due to concerns that the number of subscribers has peaked. However, there is still some value left in, reckons Neil Campling of Mirabaud, especially if it finds ways to cut down on password sharing, which has been blamed for allowing people to have a free ride on other people’s subscriptions. He also thinks Netflix could make money from developing computer games based on some of its hit series. Netflix trades at only 14.8 times forecast 2023 earnings.

Microsoft (Nasdaq: MSFT) should do well, thinks Anthony Ginsberg of GinsGlobal. He is particularly impressed by the way that it has become a “sizeable player in cloud computing”. At the same time, the company is also making moves into online gaming: it recently revealed that more than ten million people have streamed games over Xbox cloud gaming. The stock is more expensive than other blue-chip tech stocks at 23.6 times forecast 2023 earnings, but is showing strong growth. Sales have nearly doubled since 2016, and are set to keep growing at roughly 10% a year.

Cybersecurity firm Palo Alto Networks (Nasdaq: PANW) will continue to benefit from the surge in demand created by the move to cloud computing, says Jerry Thomas of Sarasin. It is particularly noted for its advanced firewalls as well as its automated security operations, and also provides security consulting services to companies. The shares are not cheap, even though they are down by around 30% from their peak, and still trade at 49 times forecast 2023 earnings. However, sales more than doubled between 2017 and 2021, and are expected to keep growing at around 25% a year.

... and two technology funds that do the same

If you want to invest in a broad portfolio of tech shares then HAN-GINS Tech Megatrend Equal Weight UCITS ETF (LSE: ITEP) might fit the bill. This has a portfolio of 114 companies in various fast-growing sectors, including cloud computing and big data, cybersecurity, social media, blockchain and digital entertainment. The companies in the portfolio are on an average price/earnings ratio of 22 and the ETF’s total expense ratio (TER) of 0.59% is reasonable.

If you want to focus on a specific theme, the HAN-GINS Cloud Technology Equal Weight UCITS ETF (LSE: SKYP) holds a group of 76 companies involved in the shift to cloud computing. It also has a TER of 0.59%. Equal weight means that a fund holds the same amount in each stock, rather than holding more in larger companies, like most indices.

It has been a terrible year for the technology stocks that were the big winners from lockdown and were meant to be at the core of any investment portfolio – the Nasdaq stock index is already down by 28% since January and is deep into bear territory.

Between them the major technology companies have lost almost $3trn in market value: Apple and Microsoft have both lost half a billion each; Alphabet, the parent of Google, has lost $400bn, as have Tesla, Meta – as Facebook now calls itself – and Amazon. Netflix is down by 60% since the start of the year and the once high-flying exercise bike maker Peloton is down by 80%. It is carnage.

It is easy enough to understand why. As the Federal Reserve starts steadily raising interest rates to control inflation, and stops printing dollars like crazy, money has started to become tighter, and that is hitting the value of every kind of asset. At the same time, some of the hype around lockdown has started to evaporate – it turns out that we don’t really want to spend the rest of our lives at home, watching streamed gigs, eating delivered food and keeping fit with apps. We like to go out from time to time.

Many of the predictions of a permanent shift to a purely digital economy have turned out to be premature and some of the business models touted at the height of the pandemic are now looking very flimsy.

It’s 2002 all over again

It is all starting to look a lot like the dotcom bust of 2002. On 9 October of that year, the technology sell-off reached its peak, with the Nasdaq down 78% from its turn-of-the-century highs.

Right now, the collapse of this year is tracking the dotcom collapse of 2001 and 2002 closely. The backdrop is similar: a wild bubble had built up over several years, with valuations chased ever higher. Led by the venture-capital funds, too much investment poured into flimsy ideas. Retail investors were sucked in, naively believing that it was an easy way to make a lot of money.

What lessons can we learn from the last dotcom bust? There are three big ones.

1. It will be a year before the bottom is reached

The bubble didn’t pop in one day, with a spectacular collapse, but dragged on for almost 18 months. There wasn’t any point buying the dips, because each one was followed by even steeper falls. It was a long, grinding process that wiped out all the euphoria of the previous years.

2. Weak firms will be washed away

During the dotcom mania, just about any twenty-something with a laptop and a business plan sketched on the back of an envelope could raise a few million in minutes. Some very poor ideas received a lot of funding.

Pets.com, which sold pet food online, managed to rack up losses of $147m in a single year before folding; E-Toys spent millions on marketing before quickly disappearing; shares in theglobe.com soared 600% on their initial public offering, but its site was quickly overtaken by social-media giants such as Facebook.

It will be the same this time around. As a bust unfolds, it is impossible for firms simply to raise more capital from the markets to sustain themselves. Any firm not cash-flow-positive will soon be in trouble – and that covers a lot of business. Before long, we’ll see a wave of collapses, bankruptcies and recriminations.

3. Some real bargains will eventually emerge

By the autumn of 2002 a lot of high-quality companies were once-in-a-generation buys. At the bottom of the market, Amazon, then mainly just an online books retailer, had fallen by 90%; over the next couple of decades it went on to conquer the world. EBay’s shares more than halved, but went on to rise tenfold in the following years. When this bust is over, there will be plenty of bargains.

Netflix has already fallen heavily, but whatever its problems it still has an incredibly powerful brand. Likewise, Uber may face plenty of difficulties, but it has mastered logistics like few rivals. Tech remains the most exciting industry in the world, with the strongest growth prospects. Anyone who can pick the winners from the survivors will do well.

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Three things you should learn from Bill Ackman's brilliant Netflix trade

The tech bubble has burst – but I still want a Peloton

Back in 2013, American financial pundit Jim Cramer, host of the Mad Money TV show, introduced investors to a new basket of stocks: the Fangs. These were the tech investments of the future, he said. They were called Fangs because they “take a major bite out of the bears”. Classic Cramer.

The original basket was Facebook, Amazon, Netflix and Google – hence the acronym. Apple was added to the list fairly soon afterwards, and Microsoft sometime later. There were also some name changes to upset the acronym. Google’s parent company became Alphabet in 2015; more recently, Facebook relaunched as Meta Platforms in 2021. But the term Fangs has stuck as a shorthand for a basket of companies best poised to take advantage of new technological trends.

Old tech stocks, such as IBM and Dell, were based on the emerging personal computing revolution of the 1990s. But the new tech stocks were partaking in the upheaval brought to all our lives by the rise of high-speed internet and everything moving online. Facebook was going to be the new public square; Amazon would replace the high street; Netflix would push the cinema into irrelevance; Google would become the equivalent of the highway that connected you to the rest; Apple would provide the cutting-edge hardware to access the grid; and Microsoft would transport all the data into the cloud.

How did these prognostications work out? Pretty well. The world certainly has been taken over by these companies. Investment returns have reflected this as well – for a while anyway. Between early 2014 and early 2020 – just before the markets crashed after the Covid-19 outbreak – a market-cap-weighted portfolio of these companies was returning a stunning 37.4% price growth annually. Compare that with the 8.8% of the S&P 500 or 15.5% of the tech-heavy Nasdaq Composite over the same period. If you had listened to Cramer back in 2013, you could have truly made some mad money from his idea.

Fang stocks: not much in common

During this time, the Fangs also came to dominate the markets. They became the pack leaders for the market rally of this period. If Alphabet or Microsoft were up on a given day, you could bet that the Nasdaq was, too – and probably the S&P 500 to boot. This led some investors to think that the market rally as a whole was ultimately dependent on the performance of the Fangs. Yet if you looked deeper into the basket you could see some problems. These six stocks had been lumped together because of their technological affinity. But a more basic analysis showed that they operated on very different business models.

Alphabet, Amazon, Apple and Microsoft were classic monopoly companies. Amazon uses its sheer size and influence to dominate online retail. Google does the same for online search. Microsoft has managed to achieve the same thing behind-the-scenes in cloud computing and business IT infrastructure. Apple is firmly established as the hardware for people who like tech – or like to look like they like tech. But what about Netflix and Meta? Back when Cramer introduced the term, both looked like they had solid monopolies in their respective fields – online streaming for Netflix and targeted advertising for Facebook. A deeper analysis, however, suggested they might not hold onto this position for long.

Equity analysts talk about a company’s monopoly position in terms of how wide their economic moat is – the metaphor is obviously taken from a medieval castle. A company with a wide moat is thought to have an entrenched market position that would be hard for competitors to challenge. For example, it is almost impossible to imagine a small start-up trying to challenge Amazon’s impressive distribution networks.

It is not, however, so hard to imagine a company challenging Netflix’s online streaming services. Setting up a rival platform should be straightforward enough. At that point, the two would compete on quality and cost. Similarly, there seems no reason to think that Meta’s Facebook should have a permanent hold on social media. New trends are popping up all the time. Kids these days laugh at Facebook as a platform dominated by “old” people.

The Fang stocks’ diverging fortunes

Markets have belatedly caught up with this analysis. Meta and Netflix have started to see their share prices decline dramatically. At the time of writing Meta is down roughly 35% over the past 12 months, while Netflix is down about 60%. Alphabet is flat, Apple is up 20% and Microsoft up 12%. Amazon is down more (a 27% fall), mostly due to its recent results and the end of the lockdown-driven online-shopping boom, but overall it’s clear that Meta and Netflix are now being treated differently to the rest.

Markets have become more, not less dependent on the Fangs in this period, but they have shifted in such a way that they pay less attention to the price moves of Netflix and Meta. This may still be a problem, since the rest of the Fangs are not doing as well as they have in the past: they’re between 12% and 27% in the red since the start of the year. That’s a far cry from the 37.4% average annual growth they delivered in the 2010s (on a cap-weighted basis). No wonder markets are sagging.

Still, moving forward, if you still think the Fangs have serious value to deliver, it might be sensible to toss out Netflix and Meta – unless you think that company management can pull a rabbit out of the hat and turn them into hyper-competitive players in sectors that are suddenly newly competitive.

Innovation is not necessarily dependent on the latest tech. Rather, an innovative business is one that creates genuine value for customers by delivering a product at a lower price or a higher quality-to-price ratio than what was available before. In terms of lower price, think of Costco, which beats Walmart and even the mighty Amazon by welcoming its members directly into its warehouse premises. In terms of quality-to-price think of the ever-growing value proposition of the Apple iPhone, now a 15-year-old invention.

But not every great innovation is a good investment. A successful innovative business must capture an adequate share of the value it creates. If an innovative product is easy to replicate, then everybody does it and nobody makes any money. Think of Peloton and its copycats. As such, we only invest in innovative businesses that possess or are in the process of building lasting barriers to competition to protect their profits, and whose market valuations present significant long-term upside to shareholders.

Planet Fitness: gyms for less

Planet Fitness (NYSE: PLNT) is a franchiser and operator of over 2,000 gyms in the US. Its no-frills gym and low-priced offering are disrupting the market and bigger competitors. The average gym membership fee in the US is $50 per month and Planet Fitness’ basic membership comes in at $10. Incumbent gyms are committed to their plush facilities and associated high costs, and are simply unwilling and unable to cannibalise their higher membership fees. This gives Planet Fitness its runway to grow. The company has weathered the pandemic well in a badly affected industry, and is well positioned to capitalise on the recovery.

Otis: on the way to the top

Otis (NYSE: OTIS), the lift maker, has recently spun out of its parent United Technologies. We love when excellent businesses spin out of poor performing conglomerates. With a portfolio of approximately 2.1 million elevator units, Otis is around 40%-50% bigger than the other three global original equipment manufacturers in elevator maintenance, which gives it opportunities to drive incremental scale advantages.

The elevator maintenance industry has retention rates of 95%, strong pricing power and the ability to add additional customer value through innovations. This means strong cash generation, which management, relishing the opportunity as a standalone company, is busy reinvesting in growth while returning the rest to shareholders via dividends and share buybacks. Meanwhile, the stock trades at a 40% discount to lower-quality peers Kone and Schindler, and we believe it is at a significant discount to intrinsic value.

American Express: handsome rewards are paying off

American Express (NYSE: AXP) is gaining market share against the big two card networks, Visa and Mastercard, as card transactions become electronic. Digital wallets and online checkouts create a more level playing field than leather wallets. The burgeoning ranks of Amex members are increasingly focused on rewards, where the company beats the big two hands down.

As commerce shifts online, merchants are pressured to reduce payments frictions, so accepting Amex is essential. The firm is thriving even though travel remains subdued. Revenues and profitability are above pre-pandemic levels. As travel recovers it will enjoy excellent operating leverage.

French philosopher Simone Weil once said the future is made of the same stuff as the present. So I’m going to abstain from any 2022 futurology and will instead pose five questions most private investors would be well served to ponder as we go into the new year.

From tech to VCTs

Do US technology growth stocks have much further to run? The average price/earnings (p/e) ratio of the FAANGs (Facebook, Apple, Amazon, Netflix and Google) is over 40. They may be overvalued by traditional metrics, but the continued flow of money into them shows investors don’t care.

If the secular drivers pushing these types of shares higher stay in place, it has implications for UK venture capital trusts (VCTs). These tax-efficient venture funds are not the same as the US tech giants. They have their own unique selling points. However, if tech trends remain strong, I think UK investors will put even more money into the next round of VCTs. Most of the experts I’ve spoken to in the field believe the first quarter of 2021 will be a bumper year.

Conversely, if you think the US initial public offering (IPO) pipeline will shut and tech stocks will tank, now is probably not a great time to be backing VCTs.

Consider alternatives

Are you ready to take the plunge into alternatives? There has been an explosion of alternative funds listing on the UK market, ranging from renewables and infrastructure funds to music royalty funds and shipping funds. There are also veteran private equity funds such as HgCapital, Harbourvest, and Oakley Capital. Institutions and wealth advisers remain dominant on their share registers, but their managers have reported increasing interest from private investors. The consensus among most institutions is that anything between 10% and 40% of their portfolios can be exposed to alternatives, and private equity specifically. By contrast I would suspect most private investors have less than 5% exposure to private equity in their portfolios.

Time for the UK to shine

UK-focused funds had a decent 2021, but will they do better in 2022? The average UK-focused fund returned 18% compared to 12.5% for global equity funds in 2021, according to Numis. UK all-companies funds returned 16.6%, and UK smaller-cap funds 21%. But, over the last five years, global equity funds have delivered a 102% total share price return while UK funds have produced returns of 54%. Most strategists believe the UK equity market is undervalued and UK equities are certainly under-owned by most large institutions.

ETFs go active

Will you consider an actively managed exchange traded fund (ETF)? ETFs are largely thought of as passive investment vehicles that track an index and that certainly used to be the case. However, the growth of thematic funds has paved the way for more concentrated portfolios of stocks – sometimes comprising no more than 30 to 50 shares – whose indices tend to be actively constructed. The next step was to get an active manager to run the portfolio. A few active ETFs have emerged in the UK and Europe, but I expect an increase in issuance in 2022. They are already a big thing in the US: roughly two thirds of all the ETFs launched in 2021 were actively managed.

Getting into crypto

My last question pertains to the most alternative asset class out there: cryptocurrencies or digital money. How will UK private investors choose to build their exposure to these investments? Many are interested but don’t know how. Do they hold the currencies directly or in a diversified fund, or invest instead in the new digital infrastructure behind them? I believe it won’t be long before someone launches an investment trust or active ETF that invests in and across currencies and the decentralised finance system behind them.

Tim Cook marked the new year on his Twitter feed with tributes to the inspiring leadership examples set by the late Desmond Tutu and Sidney Poitier. He didn’t mention his own big news – that, under his watch, Apple had scored the remarkable achievement of becoming the world’s first $3trn company, having tripled in value in just three years. The iPhone-maker’s annual revenues now exceed the GDP of most countries. Perhaps it was politic to avoid highlighting this though – thanks to stock awards, his own pay shot up by a whopping 569% to $98.7m last year. As Statista notes, the self-effacing Apple boss now outearns the company’s “regular workers” (whose median compensation was $68,254 in 2021) by a “staggering” ratio of 1,447 to 1.

How Tim Cook transformed Apple

The figures are all the more remarkable given the “pervasive” scepticism surrounding Cook’s elevation to the top job a decade ago, following the illness and death of Apple’s visionary founder, Steve Jobs, says the Financial Times. Back then, rivals such as Oracle’s pugnacious boss, Larry Ellison, claimed it was “inevitable that the company would struggle” under Cook, who was dismissed as an effective, but uninspiring chief operating officer lacking the genius of his predecessor. “Few predictions have ever been so wrong.”

Critics argue that the enigmatic Cook has merely built on Jobs’ legacy, aided by a “decade of easy-money policies, big shifts into mobile and the emergence of cloud computing”. But that overlooks the qualities he has brought – “from supply-chain expertise” to his “savvy” navigation of trading currents. Tech news site The Information recently suggested that Apple is so reliant on its boss’s diplomatic skills in international negotiations (particularly with tricky customers such as China) that it could face difficulties when he stands down.

Cook has taken plenty of flak for failing to produce a “magic” product moment, yet his two major innovations, AirPodsand the Apple Watch, have actually proved big successes, says the FT. That may be beside the point. Supportersclaim his most important contribution has been the transformation of an inherently “volatile” product-based company into a services juggernaut, eking out every penny from “the Apple ecosystem”. Above all, he has brought “consistency”.

Born in 1960, and raised in Robertsdale, Alabama, Cook always stood out as a likeable, “reliable kid”, says the local news site AL.com. “He was just the kind of person you liked to be around,” observed his maths teacher. Cook went on to study industrial engineering at Auburn University, later taking an MBA at Duke. After working at IBM, Intelligent Electronics and Compaq, he moved to Apple in 1998. His first meeting with staff on arrival set the tone, says The Wall Street Journal – it “lasted 11 hours”. Team members still call Fridays “date night with Tim”, because meetings tend to stretch hours into the evening.

A humble workaholic

With his “homely drawl” and “approachable demeanour”, the Apple boss appears “affable”, says The Times. Yet he can sometimes be just as fearsome as Jobs. He habitually rises at 4am and is all over the detail of Apple’s operations – woe betide anyone who arrives in a meeting unprepared. “Devotion to privacy” has always been a big theme for Cook, both professionally (he enjoys “tweaking Mark Zuckerberg’s tail” about Facebook’s harvesting of personal data) and in private life, says The Sunday Times. Colleagues and acquaintances describe him as “a humble workaholic with a singular commitment to Apple”, says The Wall Street Journal. It has certainly proved a fruitful marriage.

The five biggest stocks in the S&P 500 – Facebook, Apple, Amazon, Microsoft and Alphabet/Google – now account for just under a quarter of the market capitalisation of the US index. That’s well above the long-term average of 14%. The top ten, meanwhile, account for nearly 30% – again, well above the long-term average of about 20%. These figures help explain why the big tech firms have become such a lightning rod for competition concerns, but they don’t explain how this dominance has come about.

Now a new working paper from the National Bureau of Economic Research, an American think tank, suggests that record low interest rates have been critical. In “Falling rates and rising superstars”, Thomas Kroen, Ernest Liu, Atif Mian and Amir Sufi analysed market data going back to 1962. They compared the market performance of companies in the top 5% of their industry with the returns on a portfolio consisting solely of their smaller rivals. They found that when interest rates were falling, the dominant companies outperformed. “Falling...rates disproportionately benefit industry leaders, especially when the initial... rate is already low.”

Why is this the case? Industry leaders are able to borrow more cheaply and in greater quantities than their smaller competitors, so they get more benefit from falling rates. In turn, this means they can buy back more shares and also leverage up their balance sheets (both of which tend to boost valuations while rates are falling). Privileged access to cheap money also means they can invest in expansion, or in buying rivals, more easily. In effect, lower rates give leading companies the ammunition to entrench their dominance.

What does this mean in practice for investors? If falling rates have boosted valuations of the biggest stocks on the way up, it implies they may struggle if rates rise, particularly as this would mean investors place less of a premium on future earnings. So if inflation isn’t transitory (even central bankers are finding this argument hard to sustain), betting on big tech – and by extension, the US market in general – may no longer be such a sure thing.

Of course, rates may remain low. However, as recent events in both the US and China amply demonstrate, governments don’t like it when one group of companies appears overmighty. So if rates don’t rise, heavy-handed regulation may step in to knock big tech off its perch instead. One way or another, superstars eventually tend to fall to earth. This is all worth bearing in mind when considering your asset allocation. Don’t dump your tech holdings that have done so well. But ensure you have some exposure to assets that may benefit from a changing backdrop – having some exposure to commodity producers probably makes sense.

There has always been something intellectually topsy-turvy about investing in emerging markets. The theory is straightforward: if you invest in developing countries with young and rapidly growing populations, cheap labour, improving infrastructure and a reasonably clean government, then stockmarket returns should be greater than those from more mature, slower-growing economies. This was the yarn I both spun and believed during three decades of involvement in emerging markets in fund management, broking and corporate finance.

Quite often, however, you were not buying into the local growth story, but into companies selling to multinationals in advanced countries, taking advantage of cheap local labour, a lack of employment rules and low taxes. A good example is the iPhone. Less than 10% of the components are actually designed and made in America. Most of the manufacturing occurs offshore, mainly in Asia. The same applies to semiconductor components, vital for a broad range of appliances from cars to washing machines. The value accrues less to the emerging economy and more to the multinational. Hence Apple’s gross profit margin has been between 30% and 40% for the last 15 years, while the margins for the local suppliers of components are a fraction of Apple’s. Companies will always try to find the lowest-cost suppliers to remain competitive. It’s been going on ever since East Anglia enjoyed an industrial revolution 3,500 years ago, exporting flints for spear and axe-manufacturing in Europe.

Another problem for developing economies was that foreign companies would often crowd out local businesses due to their ability to raise capital and swallow start-up costs. That is why Africa has only a rudimentary car-manufacturing sector producing a mere handful of designs, while key components such as the engine are imported or made under licence. Until recently Asia (ex-Japan) had failed to create significant players in services such as advertising or to develop global drinks brands. In broadcasting and publishing, too, there have been few winners.

Where the value goes

The result has been that until recently, most emerging-market indices were dominated by local banks, property companies and utilities, where government tended to impose controls against foreign competition. Because local banking regulation and oversight were typically weak and capital flows erratic, emerging markets became as well known for their booms and busts as for their growth stories.

Even in sectors where emerging markets have the edge, such as commodities or clothing manufacture (the starting point for the success stories of Singapore and Hong Kong), often the value-added is lost to the overseas operator or buyer. Swedish-based Hennes & Mauritz, for instance – better known as H&M – is a global success in selling clothes (and if you had invested 30 years ago you would have made 200 times your original investment). It owns no factories, but designs and then sources clothes from over 800 local production sites worldwide, many in developing countries. The gross profit margin in the four years to 2020 was a chunky 50%. The suppliers will have been negotiated down as much as possible; moreover, with so many sources H&M can change suppliers in the blink of an eye. Given Sweden has only 11 million people, it’s a remarkable story of a company turning its comparative disadvantage into success. But its shareholders have been the winners, not emerging-markets investors.

In natural resources too, a disproportionate number of the winners have been foreign companies rather than local ones. Indonesia groans with copper and gold, but its largest mine is owned and operated by Freeport-McMoRan, based in Arizona. The largest global copper deposits are in Chile. Anglo-Australian BHP Billiton owns Chile’s – and the world’s – biggest copper mine, the Escondida project, in a joint venture with UK-based Rio Tinto and a Japanese consortium.

An inferior index

The leading benchmark for developing economies is the MSCI Emerging Markets index, which reflects the performance of large and mid-cap companies in 27 nations. These markets are defined as “economies or countries where some sectors are rapidly expanding and engaging aggressively with global markets”. Sounds pretty woolly? It is. The index is dominated by three countries: China (comprising almost 40%), then Taiwan and South Korea (27% combined). Some countries, such as Singapore and Hong Kong, are absent because they have achieved developed-market status, and the index does not cover “frontier markets” (the poorest economies), which have their own index. China as an emerging market is an anomaly as it is the world’s second-largest economy. Its dominance of the benchmark has resulted in many funds using indices with a lower China weighting, but as a result Taiwan and South Korea become even larger. Either way the index still makes little sense given that Taiwan has income-per-head substantially larger than the UK and South Korea about the same as the EU average.

The definition of emerging markets, then, is now out-of-date and the term has become a pretext for marketing “exciting” products and earning high fees. Emerging-market funds tend to charge 50% more than others. As an investment category it’s not going away anytime soon, but the examples of companies making hay in these countries points to an often more successful and cheaper way to invest.

Where investors should look

Look at where a company makes its money, not where it is listed. Many firms listed in emerging markets make their profits selling overseas, so they are tied into the slow growth in mature economies – the opposite of what investors think they are buying. For the prime reason to invest in developing countries is to capture their high domestic economic growth. Therefore it is far more rational to invest in companies (wherever they are domiciled) that derive much of their sales and profits from emerging markets.

There are many in the UK and other major markets, which have the added benefit of better corporate governance and less corruption. Moreover, returns are often better. Some of the best emerging-market companies are actually “at home”. There are some interesting growth stories at the smaller end of the UK market.

I have owned Nichols (Aim: NICL) for 20 years even though its main product, non-alcoholic Vimto, is an acquired taste. If you’re in the Middle East, it is the drink of choice. If you want to play Emerging Europe’s thirst for knock-out alcohol, then Stock Spirits Group (LSE: STCK) is the share for you. In soft drinks, consider Coca-Cola Hellenic Bottling Company (LSE: CCH).

If you are taking a shower in Nigeria then you’ll probably be washing with a product from PZ Cussons (LSE: PZC), whose brands include Imperial Leather. Until recently Nigeria accounted for over half of Cussons’ revenue and profits. Also in Africa, mobile telephony is a fast-growing business. Airtel Africa (LSE: AAF) provides mobile services in 14 countries; Helios Towers (LSE: HTWS), as the name implies, creates the infrastructure for mobile signals. There are also MP Evans (Aim: MPE), a successful palm-oil producer in Indonesia and Ocean Wilsons Holdings (LSE: OCN), a tug and maritime operator in Brazil.

In natural resources London remains a leader and the sector is on a roll. Demand for copper is increasing with the switch to electric vehicles. One of the best and purest copper miners is Antofagasta (LSE: ANTO), which runs four mines in Chile. For silver look no further than Fresnillo (LSE: FRES), which operates seven mines in Mexico, also producing gold, lead and zinc. Other large miners in developing countries include Anglo American (LSE: AAL), Rio-Tinto (LSE: RIO) and BHP Billiton (LSE: BHP).

Burberry (LSE: BRBY) has come to represent affordable luxury and its future depends entirely on Asia-Pacific and emerging markets, where it has three quarters of its stores and franchises. Many of the largest companies also depend on the growth of their sales in emerging markets. BAT (LSE: BAT) may make semi-lethal products – cigarettes – but a large percentage of its 600 billion cigarettes per year are smoked in these countries. AstraZeneca (LSE: AZN) was making 35% of its sales to developing nations even before the pandemic. Unilever (LSE: ULVR) sells more to them than to the UK and US combined.

In other advanced countries too some of the largest companies increasingly profit from the less-wealthy nations – half of all Gucci’s sales (the brand is part of Kering, (Paris: KER) are made in these countries and it will shortly be the same for Nestlé (Zurich: NESN). I have a love affair with the US-listed farm machinery maker AGCO Corporation (NYSE: AGCO). Most of its sales are made outside America, with a significant market share and production facilities in Latin America, eastern Europe and China. Eastern Europe and Asia account for more than 50% of profits at Denmark’s Carlsberg (Copenhagen: CARLB).

The funds to buy now

Much of the time the best way to play emerging markets’ undoubted growth and potential is through such large-cap and smaller companies, which have successfully navigated the barriers, corruption and local cultures, rather than through emerging-market funds. For the last decade this has certainly been the case: the returns from emerging markets have been miserable and not commensurate with the higher risks. The MSCI Emerging Markets index ex-China has produced an annualised return of just 3.2% over the last decade; including China, 4.1%. Meanwhile, the developed world ACWI index has returned 9.6%.

I think companies in mature economies who recognise that their future relies on expanding into these countries will continue to benefit. So I will keep buying household names with such exposure as well as some of the smaller companies I have mentioned. But if you prefer funds, then two investment trusts stand out on their five and ten-year records respectively: Fundsmith Emerging Equities (LSE: FEET) and JP Morgan Emerging Markets (LSE: JMG). Both are on attractive 7.5% discounts to their net asset value.

Delays in the Suez Canal will do nothing to ease the global “supply-chain crisis”, says George Stahl in The Wall Street Journal. The semiconductor industry is looking particularly stressed. Computer-chip shortages have been driven by the demand side of the market, says Mark Sweney in The Guardian.

Lockdowns have brought soaring sales of games consoles, televisions and home computers. Meanwhile, modern cars need more chips than ever before (40% of the manufacturing cost of a new car goes on electronics).

“Nearly every” big carmaker has been forced to cut back on production or even temporarily close plants for want of chips, says Stahl. Toyota says that it is not just semiconductors that are in short supply: it has also been hit by a dearth of plastics after freak weather hit the Texan petrochemical industry in February. Carmakers will pay a steep price for underestimating vehicle demand, says Bloomberg. Globally they could lose a combined $61bn in sales this year.

The semiconductor market is cyclical and had been on a downswing before the pandemic triggered a sudden spike in demand. Politicians in Washington, Brussels and Beijing are concerned about the security of semiconductor supply, which is dominated by companies from Taiwan and South Korea. Industry behemoth Apple was forced to delay last year’s launch of the iPhone 12 while it scrambled to source enough chips, says Sweney.

And Samsung, itself the world’s second-biggest semiconductor maker, is struggling to find enough of the widgets for its own smartphones. The shortages have triggered a price spike but new supplies won’t arrive soon: “It can take up to two years to get complex semiconductor production factories up and running.”

1. The price of which cryptocurrency jumped after Tesla chief Elon Musk tweeted messages in apparent support of it?

• a. Bitcoin
• b. Dogecoin
• c. Litecoin
• d. Tether

2. Which tech giant posted quarterly sales figures of over $100bn for the first time for the last quarter of 2020?

• a. Microsoft
• b. Twitter
• c. Apple
• d. Facebook

3. “Buy now, pay later” services are facing regulation after a report revealed that users have racked up £2.7bn in debt. The sector has been subject to controversy for allowing users to spend over £1,000 with few checks on whether they can afford repayments. Which company is the market leader in the UK?

• a. Klarna
• b. Laybuy
• c. Clearpay
• d. Afterpay

4. The CEO of which major tech company announced he would be stepping down to become executive chairman, focusing instead on personal climate-change initiatives, space exploration, and the newspaper he owns?

• a. Reddit’s Steve Huffman
• b. Facebook’s Mark Zuckerberg
• c. Apple’s Tim Cook
• d. Amazon’s Jeff Bezos

5. The UK passed a vaccination milestone this week, having inoculated how many people?

• a. 5 million
• b. 15 million
• c. 10 million
• d. 20 million

6. Shares in Chinese video-sharing app Kuaishou jumped nearly threefold on their first day of trading in the Hong Kong Stock Exchange, propelling its valuation to $160bn, closing in on main rival Bytedance, owner of TikTok. It raised $5.4bn in its IPO, the biggest tech flotation since which company’s IPO in 2019?

• a. Uber
• b. Lyft
• c. Alibaba
• d. XP Inc

7. Which bank reported a positive quarter in the three months to December following three years of losses?

• a. Halifax
• b. Nationwide
• c. Virgin Money
• d. NatWest

8. The Indian government accused celebrities of “sensationalising” the farmers’ protests that have been taking place in Delhi for over two months after which famous singer with over 100 million Twitter followers tweeted about it?

• a. Kim Kardashian
• b. Rihanna
• c. Cher
• d. Celine Dion

9. The oil industry is still recovering from the effects of the pandemic. Despite a plunge in earnings to its lowest in 15 years, which oil company raised its dividend?

• a. BP
• b. Exxon
• c. Chevron
• d. Royal Dutch Shell

10. The UK is applying to join a trading bloc of 11 Pacific Rim nations, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Which of the following isn’t part of the CPTPP?

• a. Mexico
• b. New Zealand
• c. South Korea
• d. Peru

Answers

1. b. Dogecoin. Dogecoin is a minor cryptocurrency, created as a joke to satirise digital currencies. Its price rose 47% within minutes of Musk’s tweets, from about four cents to as high as 5.9 cents before settling back to 4.7 cents. It is named after the popular meme of a Japanese dog.

2. c. Apple. For the three months ending on 26 December 2020 Apple posted sales of, $111.4bn with a profit of $28.7bn, 29% higher than the same period last year.

3. a. Klarna. The Financial Conduct Authority announced this week it would be regulating the sector, which allows users to skip payment at checkout and repay interest-free later. Consumer campaigners have spent months demanding the sector be regulated amid fears shoppers were being encouraged to spend more than they could afford.

4. d. Amazon’s Jeff Bezos. Bezos announced the move this week. His successor will be Andy Jassy, who currently heads Amazon’s web services. The transition will take place in the third quarter of 2021.

5. c. 10 million. Around 15% of the population has received the first dose of the vaccine just under two months after the programme began.

6. a. Uber. Minicab app Uber raised $8bn when it floated in 2019.

7. c. Virgin Money. Chief executive David Duffy said the lender had enjoyed a profitable first quarter in the three months to the end of December but did not provide a profit figure.

8. b. Rihanna. The singer’s tweet was liked over half a million times and inspired other celebrities to lend their support. The Indian government has insisted the protests are an “internal matter”, adding celebrities lacked “a proper understanding of the issues”.

9. d. Royal Dutch Shell. The oil major reported an annual loss of $21.7bn, but it decided to raise its dividend for the second time in recent months after a dramatic cut to the payout last April dragged it down by two-thirds to 16 cents. It raised its dividend to 16.65 cents in October, and will raise it to 17.35 cents in the first quarter of 2021.

10. c. South Korea. The CPTPP was formed in 2018, with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam as founding members. CPTPP nations made up 8.4% of UK exports in 2019, around the same as exports to Germany.

1. Which prominent Japanese car manufacturer, which employs 6,000 people in Sunderland, has recently announced plans to continue its UK operation post-EU trade deal?

• a. Nissan
• b. Hyundai
• c. Honda
• d. Toyota

2. Which video-streaming service, which saw spectacular growth during the pandemic, made an annual profit of $25bn and has accrued a total of 203.6 million subscribers?

• a. Apple TV
• b. Amazon Video
• c. Netflix
• d. Hulu

3. Which prominent Chinese entrepreneur resurfaced this Wednesday after a three-month hiatus, following the halting of his firm’s $37bn IPO?

• a. Softbank’s Masayoshi Son
• b. Ant Group’s Jack Ma
• c. Tencent’s Ma Huateng
• d. Samsung’s Kim Ki Nam

4. In place of the usual crowds, missing because of the danger of spreading Covid-19, US President Joe Biden’s inauguration filled America’s National Mall with 200,000 of what objects representative of ‘American unity’?

• a. McDonald’s Big Macs
• b. Flags
• c. Olive branches
• d. Lit torches

5. Which prominent airline has reported a $33m daily cash burn, and $1.9bn loss in the fourth quarter of 2020?

• a. United Airlines
• b. British Airways
• c. Ryanair
• d. American Airlines

6. Which German car company boasted an annual profit of £12.bn for 2020, despite the Covid-19 pandemic?

• a. Volkswagen
• b. BMW
• c. Porsche
• d. Audi

7. Which European country surpassed the highest monthly borrowing figure on record for December after borrowing £34.1bn?

• a. Germany
• b. France
• c. United Kingdom
• d. Greece

8. Which high-flying CEO has recently acquired two Texan oil rigs for the price of $7m to serve as launch pads for their developing space programme?

• a. Jeff Bezos
• b. Richard Branson
• c. Elon Musk
• d. Mark Zuckerbeg

9. Which mortality-conscious American real estate mogul has recently offered scientists $1m in prizes to prove the existence of life after death?

• a. Donald Trump
• b. Robert Bigelow
• c. Donald Bren
• d. Sam Zell

10. The price of which controversial cryptocurrency dropped below $30,000 this week?

• a. Ethereum
• b. Litecoin
• c. Ripple
• d. Bitcoin

Answers

1. a. Nissan. Following the trade deal between the UK and EU, Japanese car manufacturer Nissan has reported plans to secure its UK manufacturing plant in Sunderland, guarding 6,000 local jobs.

2. c. Netflix. Making a $25bn, streaming giant Netflix reported it had hit a total of 203.6 million subscribers during 2020, as consumers turned to the entertainment service during the pandemic.

3. b. Ant Group’s Jack Ma. Ant Group CEO Jack Ma returned to the limelight after three months, in a video praising China’s teachers.

4. b. Flags. Because of concerns that crowds would spread Covid-19, US President Joe Biden’s inauguration was performed to a background of 200,000 flags representing the 50 states and 5 territories of the USA.

5. a. United Airlines. The US carrier has recently pledged to cut costs to keep the airline aloft, after a disastrous fourth quarter of 2020 resulted in a $1.9bn loss .

6. a. Volkswagen. VW has made a £12.2bn annual profit for 2020, despite a 15% fall in worldwide vehicle deliveries; strong demand in China helped it rebound from the pandemic.

7. c. United Kingdom. The UK borrowed more money last month than in any December on record – £34.1bn, taking the total borrowing for the financial year to £270.8bn.

8. c. Elon Musk. Space X and Tesla CEO Elon Musk plans to use the rigs to expand his privatised space-programme off the coast of Boca Chica, Texas.

9. b. Robert Bigelow. Bigelow was inspired by readings by “psychic” George Anderson after the suicide of his son and grandson in 1992 and 2011 respectively.

10. d. Bitcoin. Bitcoin’s price briefly crashed to below $30,000, wiping $200bn from its value in the last two weeks.

Shahrzad Rafati decided at 13 that she would one day build a global business. As Andreane Williams points out on the BBC, she was born into a family of business leaders in Tehran, but left her native country at 17 to avoid the Iran-Iraq war. She moved by herself to Vancouver to attend the University of British Columbia, having very little English. “I knew that I needed a different future, and a life where I could make a difference, and where equal was equal.”

After she graduated in 2000, Rafati studied French at the Université Paris-Sorbonne, and leadership at Oxford University’s Said Business School. Upon graduating she founded BroadbandTV (BBTV), which she still runs. Initially a hardware company that made set-top boxes that allowed users to watch internet videos on their televisions, Rafati quickly pivoted towards software once she noticed the way Apple’s music-streaming platform, iTunes, was disrupting the music industry. Video, she predicted, would inevitably follow suit.

Within three months she decided to change the focus of the company entirely, creating software that allows firms to profit from advertisements put on content that has been pirated and re-uploaded to a different platform, such as YouTube. It does so by tracking uploaded content, such as the highlights of sports games or clips from films, through audio- and video-recognition technology, and then places advertisements on the pirated videos. The revenue goes to the firms affected, and BBTV takes a percentage.

A number of investors sought to pile in on the action, with Canadian tech businessman Hamed Shahbazi purchasing a 51% stake for $36m in 2013. BBTV’s clients include the National Basketball Association, which the firm has worked with from the beginning, Sony, Warner Bros and Disney. BBTV employs more than 400 people in Vancouver, New York, Los Angeles and Mumbai, and is thought to be worth more than $1bn. Rafati, now 40, prides herself on the diversity and equality of her workforce: women make up 43% of employees and 46% of managers – high figures for a technology company. “This is a key factor in the reason why we are so successful at BBTV,” she says.

Trinny Woodall’s bid for world domination

Despite being one half of the hit “say-it-as-it-is fashion sensation” What Not to Wear TV programme that started almost 25 years ago, it wasn’t easy for Trinny Woodall to secure funding for her latest project, says Harry de Quetteville in The Daily Telegraph. It was only after pitching to around 30 venture-capital firms that she finally found a “mainly female-led” team of willing investors and secured funding for Trinny London, her eponymous make-up brand.

The online-only brand is designed to be an alternative to the old-fashioned department-store experience of buying make-up, which can often be quite alienating for middle-aged women — Trinny’s target demographic — who don’t see themselves reflected in the people behind the counters.

“There are a lot of women from 35 to 50, which is our core target market, who are ignored,” she explains. It seems they were desperate to be heard: revenues jumped from £500,000 from 6,000 customers in 2017 when the brand was founded to £26m from 300,000 so far in 2020. Trinny London “exchanged the bafflement of 150 lipsticks” on offer in the stores for clever stackable make-up pots that snap together for easy travelling and a bespoke product-matching service that directs customers to the best shades for them.

The company has attracted attention from major players, with Unilever recently buying a stake in the business, now valued at £46m. Woodall’s share of nearly £22m landed her at number 64 in this year’s Telegraph Hot 100 list of top tech entrepreneurs.

Woodall’s success is down in part to her mastering the art of contemporary selling. She has approaching 800,000 Instagram followers and uses the platform to promote her product and build a fanbase, which has been a critical part of growing the business.

Looking towards future expansion, Woodall, now 56, has launched “Trinny Tribes”, communities of like-minded women who act as unpaid promoters for her brand. Even though the firm started just three years ago, Trinny London ships to 68 countries, and there are now 33 different “tribes” all across the world. Trinny is certain that world domination is “already happening, darling”.

Anne Boden: “Work-life balance? I only have work”

Anne Boden is well aware that she doesn’t exactly look like your average banking mogul, says Anna Moore in The Guardian. As a 50-something woman, Boden embarked on a journey to start what is quite possibly the hardest business to crack: a bank. A challenger, online-only bank at that.

Boden hails from “a very ordinary background” – she grew up in Swansea, her father worked for British Steel and her mother in the local department store. But she “did well in school… and ended up in London working for Lloyds”. Her corporate career peaked with a move to Dublin in 2012 to join Allied Irish Banks as group chief operating officer. It was here she began to picture a new kind of bank, “without the bureaucracy, where opening an account took minutes not weeks”, where cheques could be deposited with just a photo, and card-lock facilities were available 24/7. All that, but without branches.

Boden left her job in 2014 and, “with no office and no business card”, chased meeting after meeting trying to sell her vision. The pressure was “unbelievable”, and she received hundreds of rejections. But after eight months, she managed to persuade a few firms to invest and recruited a small team. Starling Bank was born. Disaster struck when her chief technology officer, Tom Blomfield, left Starling over a disagreement about investment opportunities. He started his own online bank, Monzo. Boden was shocked by the move, but continued working until the end of 2015, when she was “summoned” to the Bahamas to meet billionaire Harald McPike, who invested £48m.

Now, Starling has 1.8 million customers and employs more than 1,000 people, with over 40% of senior roles occupied by women. The bank is on course to become profitable by the end of the year and it was the only challenger bank to grow in 2020. It’s taken a lot of work, as Boden readily acknowledges. “People talk about ‘work-life balance’, I only have work – and I enjoy every minute of it.”

One of the first shares to attract my attention in the mid-1970s was a financial company called First National Finance Corporation (FNFC). The lender had been saved from bankruptcy twice by the Bank of England in the banking crisis a few years earlier and its share price was below a penny. I realised that I could buy 10,000 shares and still get change from £100, the most I could afford. Of course, I didn’t. Some ten years later, the company was taken over for more than £2 a share.

Peter Lynch, the renowned manager of Fidelity’s Magellan fund, coined the term “Tenbagger” in his book One Up On Wall Street for shares that had multiplied tenfold in value. But 100-baggers are of a different order of magnitude. They are rarely encountered and almost always involve recovery.

Apple’s share price has multiplied more than 400-fold in the last 18 years, but back then it was a recovery rather than a growth story. It seemed that the Apple Mac, though widely regarded as having a superior operation system to Microsoft-powered personal computers, was losing the battle for market share. The group’s share price had fallen by 75% in two years, although it was also affected by the bursting of the technology bubble.

Closer to home, Britain’s most successful retailer, Next, emerged from the menswear chain J. Hepworth in the early 1980s, initially with just four shops. It was so successful that it expanded rapidly, with the other chains in the group being converted to the Next brand. Merging with the mail-order company Grattan paved the way for Next’s move into mail order and hence online shopping. It was ultimately critical to Next’s success.

Nonetheless, its integration, combined with Next’s overexpansion and the downturn in household spending in the early 1990s, nearly brought Next to its knees. The shares fell to 17p, marking a decline of more than 95%. Today, however, the stock sells for more than £60, making it a 350-bagger.

Recovery pick or value trap?

Interestingly, its current CEO, Lord Wolfson, once told me that as a student he had telephoned his father, then chairman, with the shares at 17p to ask him whether he, with £1,000 to spare, should buy the shares. His father said that he should have done so, but asking him had made his son subject to “insider trading” rules, so he couldn’t.

Few recovery shares in the 1980s and 1990s multiplied 100-fold, but there were many that still performed spectacularly, including BP, Asda, WPP and British Aerospace. Inevitably, though, we remember the winners, not those that didn’t make it, which makes investing for recovery sound much easier than it is.

Shortly before they go bust, shares can appear to be a fantastic recovery opportunity when in truth their business model is broken, their competitors have overtaken them, their market has disappeared, or their finances are shot to pieces. Overoptimistic investors are inclined to buy largely because the shares have fallen a lot or are seen as takeover prospects – and almost invariably buy too early even when the recovery opportunity is real.

Twenty years ago, recovery funds and trusts thrived and looked set for further success. But then, imperceptibly, the strategy stopped working. Change resulting from globalisation, technology or government intervention meant that companies in trouble no longer seemed to have the time or opportunity to turn their businesses round. The banks failed to mount an enduring recovery from the global financial crisis; the major energy companies have continued to spiral downwards and many retailers have headed for oblivion, taking their landlords, such as Intu, with them.

Archie Norman, who turned around Asda in the 1990s, achieved much with ITV as chairman, but its fortunes and share price have spiralled down since he left. Now he is struggling with M&S. Rupert Soames achieved success as chief executive of Aggreko, but Serco has proved to be a bigger challenge than he realised. Capita survives, but has not recovered.

The tobacco companies, BAT and Imperial, prospered by focusing on their core businesses and consolidating while the major miners are pulling their businesses round, helped by firmer metal prices. On balance, however, the successes have been few and the disappointments many.

The best opportunities in a generation

The Covid-19 crash may offer the best opportunities for a generation. Many businesses, especially those related to travel and entertainment, have suffered terribly from restrictions imposed by governments. However, if they have the financial strength to weather the storm, they also boast the best potential to recover strongly when it has passed and vaccines are available...

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Investors often fail to appreciate just how big Big Tech is. The world’s four largest technology stocks –Alphabet, Amazon, Apple, and Microsoft – account for around 21% of the market capitalisation of America’s S&P 500 index. In other words, just 0.8% of the index’s companies comprise more than a fifth of the index.

But this isn’t the first time huge, fast-growing tech shares have dominated stockmarkets. The 1960s and early 1970s marked another Big Tech era. Markets were in thrall to the Nifty-50, 50 fast-growing large-caps that captured the headlines. Four of them were famous tech stocks: IBM, Kodak, Polaroid and Xerox. Their history, and the parallels we can draw with today’s market backdrop, hold valuable lessons for the investors and tech titans of the 2020s.

Turning down Xerox’s copier

All four tried to move onto each other’s turf, just as today’s tech companies have been doing. The star of the four was Xerox. From 1963 to 1972 Xerox’s shares rose by 1,463%. Shares in Haloid (which became Xerox in 1961) gained 120,000% between 1936 and 2000. Xerox’s first office copier – the 914 – was launched in 1961. But in the late 1950s, Xerox approached IBM to help fund and sell its copier after its launch. IBM employed management consultants AD Little to assess the prototype copier’s potential.

AD Little said the copier was too big for an office and too heavy for IBM’s typewriter-salesmen to transport, so IBM opted not to assist and Xerox marketed it alone. Xerox cleverly placed the machines with customers for free, charged a monthly rent covering the first 2,000 copies, and printed money by billing five cents a copy after that. I joined Xerox as a senior manager in 1973 and saw at first hand the events I describe below.

Copying Polaroid’s camera

Imaging and office automation were the main competitive battlegrounds. Kodak and Polaroid competed in imaging. Kodak was the global market leader in photographic film, paper and related chemicals. Polaroid, which invented polarisers (optical filters that let only certain lightwaves in) for sunglasses and 3D-imaging, made large instant-photography cameras.

The launch of Polaroid’s “pocket-sized” SX-70 colour instant-camera changed everything. Edwin Land, founder of Polaroid, was the Steve Jobs of his day. He wanted a pocket-sized SX-70 so, at its 1972 market launch, he produced it from his jacket – specially made with larger-than-standard side pockets. The SX-70 single-reflex instant camera automatically produced a fully-developed colour print in one minute and was an instant success.

Kodak’s team of 1,400 instant photography developers were stunned by the SX-70’s size and performance. They ditched their now obsolete prototype and copied Polaroid’s approach. Polaroid sued for patent infringement in 1976 and won. It was awarded $925m in damages and Kodak was obliged to cease production of all instant cameras and films.

Kodak’s next mistakes

While Kodak was struggling to compete with Polaroid in instant photography it made an even bigger mistake. A Kodak research and development (R&D) engineer, Steve Sasson, invented the first portable digital camera in Kodak’s laboratories in 1975. But Kodak decided not to develop and market it because it feared it would cannibalise its massive revenues from film photography. But digital photography did emerge and drove both Kodak and Polaroid into bankruptcy – in 2012 and 2001 respectively.

IBM, Kodak and Xerox competed in office automation. IBM dominated mainframe computers (large ones used for bulk data processing) and had a typewriter division. Xerox was the market leader in office copiers. Both companies wanted to offer a complete range of office automation so IBM introduced an office copier in 1970. Xerox sued IBM for patent infringement, won the case but was awarded only $25m.

In the 1970s both introduced word processors. Xerox’s Palo Alto Research Centre (PARC) developed the world’s first personal computer in 1972 (the Alto) complete with mouse, user-friendly interface and networking. In 1975 Kodak launched its Ektaprint copier aimed at Xerox’s profitable mid-range market segment. The Ektaprint’s speed and copy quality were superior to Xerox’s existing machines. Xerox had no inkling of the pending launch despite both firms having R&D laboratories in Rochester, New York with their staff mingling socially. I remember examining an Ektaprint in Xerox’s competitive products laboratory soon after launch and being impressed by its many major innovations and copy quality.

How did these companies fare moving onto each other’s turf? Firstly, Kodak moved tentatively, only launching its Ektaprint copier in six US cities. This gave Xerox time to launch a competing product with similar performance. Kodak then took seven years to launch the Mark II Ektaprint but Xerox launched an upgrade of its new model the year before. Xerox failed with its personal computer, the Alto, which was never marketed.

Xerox misses a huge trick

However, the Apple Macintosh and Sun Workstation were both modelled on the Alto. So why did Xerox not commercialise it? Firstly, because it was distracted and deterred by the purchase of Scientific Data Systems, a minicomputer company, in 1969; that division was closed down in 1975 with the loss of over $1bn. Secondly, Xerox’s top managers were from Ford and used to making modest improvements to existing products rather than launching new, innovative ones.

Xerox also failed to develop a timely small copier, partly because of thinner profit margins on smaller machines and because the small new-technology copier we developed within Xerox was burdened with large-copier specifications that delayed development and increased costs. That enabled Japanese companies such as Canon and Ricoh to launch small copiers and move upmarket with larger machines.

Then Xerox decided to explore inkjet technology for small copiers and printers and asked me to head up an inkjet R&D laboratory; I declined since I did not want to move my young family to the US. In 1968 the FTC (US Federal Trade Commission) charged Xerox with monopolistic practices (it had 90% of the US copier market). A consent decree was signed with the FTC in 1975 under which Xerox granted competitors patent licences at nominal royalties.

What investors and today’s titans can learn

What lessons can be drawn for today’s tech companies? First, if you develop a potentially world-beating product, do commercialise it (remember what happened to Xerox’s PC and Kodak’s digital photography). If you market it, do so wholeheartedly or the incumbent will match it before you gain substantial market share (Kodak’s Ektaprint). Do be aware of new or improved technologies that can take sales from your existing products (instant photography, Ektaprint improvements). If you try to copy a competitor’s product, do so without infringing its patents (Kodak/Polaroid, IBM/Xerox). And beware of regulators.

Internet and data are the battlegrounds for today’s tech companies. It all began when Apple introduced the Alto/Macintosh PC in January 1984 at a time when Microsoft had MS-DOS. Because Apple wouldn’t license its Mac software to others, Microsoft was able to develop Windows (launched in November 1985), which became the de-facto standard. IBM had used Microsoft to develop the operating system for its PC (launched August 1981), but failed to specify exclusivity, so Microsoft could sell its operating system to other computer makers.

In October 2001 Apple launched the iPod – a 21st-century version of the ubiquitous Sony Walkman. Sales boomed and 42% of Apple’s revenue in the first quarter of 2008 came from the iPod. Smartphones were the next battleground. In 2007 Nokia led the market in mobile phones. But although Nokia’s hardware was excellent, its software was not. That gave Apple the opportunity to introduce the iPhone in June 2007 and take market share. But Apple, as with the Mac, kept its mobile operating system to itself, giving Google the opportunity to introduce Android. Google was market leader in search and online advertising and wanted Search, YouTube, Maps and Gmail on mobiles. Enter Android in 2007 with the first Android smartphone (HTC’s) launched in 2008. Android has become a de-facto standard like Windows. It now has 86% of the market.

Microsoft badly missed the mobile opportunity. Samsung, using Android, became the number-one smartphone company in 2012 and has remained number one. In an echo of the Polaroid/Kodak case, Samsung was sued by Apple for patent infringement in 2011 with Samsung counter-suing. Apple eventually won damages of $539m in 2018. The next area of competition was data and the cloud. Amazon gained first-mover advantage by offering companies cloud storage and remains market leader. Microsoft’s recent renaissance stems from its adoption of cloud storage where it holds the number-two position.

Video streaming is another arena of competition. This was pioneered by Netflix, but Amazon (using Prime), YouTube (Google), Disney, Apple and others are all now competing with Netflix. Finally, remembering the FTC/Xerox case, tech companies need to be aware of regulatory issues. Microsoft was fined €561m by the EU for monopolistic practices in 2013 after it deleted a browser choice pop-up for Windows 7, having agreed in 2012 to include it. Alphabet (Google’s parent company), Amazon and Apple have all fallen foul of EU antitrust investigations in recent years. And the US Congress is expected to impose new regulations on Big Tech, which it sees as effective monopolies. Many analysts now expect these companies to be broken up – heralding an era of smaller

Despite dire warnings of imminent collapse from the investment Jeremiahs early this year, the technology sector has been a star performer. In the first half of 2020 the 28% return from the £2.6bn Polar Capital Technology Trust (LSE: PCT) and the 37% from the £800m Allianz Technology Trust (LSE: ATT) helped cushion investors from the market turbulence. So why did the bears get it so wrong?

Ben Rogoff, manager of PCT, says that the tech sector, with earnings growth of around 150%, has driven all the earnings growth of world markets since 2009. As for the pandemic, he agrees with Satya Nadella, CEO of Microsoft, who says: “We’ve seen two years of digital transformation in two months.” The sector’s valuation, with a forward price/earnings multiple of 23.5, may look expensive but is not much above the market average despite its higher earnings growth.

“The magnificent six” tech stocks deliver

Ed Yardeni of Yardeni Research points out that “the magnificent six” – Apple, Microsoft, Amazon, Alphabet, Facebook and Netflix – now account for $6.5trn of market value and over 25% of the S&P 500’s market capitalisation. But only the first two are in the information technology sector, accounting for 44% of it. Since the start of 2015, forward- earnings estimates are up 95% against a drop of 2% for the rest of the S&P. Profits have been boosted not only by revenue growth but by high margins.

It is hard to keep up with the scale and speed of digital transformation. Rogoff quotes research findings that nearly 40% of couples now meet online. Around 96% of Generation Z, born between 1995 and 2015 (26% of the US population), own a smartphone and half spend more than ten hours a day online; 70% watch more than two hours of YouTube a day, 83% watch Netflix and their average attention span is eight seconds.

More broadly, the pandemic has resulted in $52bn of additional e-commerce as the migration of spending online, hitherto occurring at a pace of 1% a year, has accelerated. The quickening trend towards remote working, education and spending is expected to persist and new areas, such as telemedicine (remote healthcare) are opening up.

Walter Price, manager of ATT, thinks there is much more to go for: half of advertising is still spent on television, radio and print. Around 42% of his portfolio is related to “the cloud”, the delivery of software and services from the internet rather than via corporate networks, a key requirement for remote working. “Technology is the way out if we are to live through pandemics,” he says.

Racing ahead of the market

Both trusts have about a third of the portfolio outside the narrowly-defined sector, balanced by relatively low exposure to Microsoft and Apple. PCT, with over 100 holdings, has more than 70% invested in the US and ATT, with 64, over 90%.

Price is far more sceptical about Chinese companies and has cut exposure there to 2%. Neither owned Wirecard, once Europe’s tech flagship. Both have more than 80% invested in firms with market values above $10bn but ATT has less exposure to the $100bn mega-caps. Both trusts boast higher growth but also higher valuations than the sector.

Rogoff invests in the high- growth phase when “companies [seem] expensive but revenue and earnings forecasts are wrong” before selling out before maturity, when stocks become value traps. This is not easy as sceptics have regularly forecast the maturity of Apple, Amazon, Facebook and Microsoft and warned about the business models of Netflix, Tesla and Ocado. They may prove equally wrong about Uber. Rogoff tells the better story but Price has outperformed him over most time periods. Both trusts should continue to be excellent investments.

Since March, selling tech stocks short – that is to say, betting that they will fall – has been about as quick a way to the poor house as has ever been invented.

Tech stocks, in the form of the US Nasdaq index, have been in a runaway bull market. The index has, in less than six months, as near as dammit doubled, going from 6,600 to a September high of 12,450.

This is an astonishing performance for an index of this market cap. But is its epic run finally over?

The trend higher in the Nasdaq is still intact – but only just

The might of big tech is quite astonishing. At more than $2trn, Apple now has a market cap bigger than the GDP of Brazil, Italy and Canada. With all of the coronavirus-related shrinking of GDP, it will probably have a bigger market cap than the UK when the 2020 figures come in next year.

Amazon, Alphabet (Google) and Facebook would all be top-15 countries. Only the US, China, Japan and Germany will be definitively larger.

You can shake your head and say that these valuations bear no relation to earnings and you’d be right. But it’s tech; they never do. Yet over the past few days we have seen something of a reversal. It is time to go short?

You do so at your peril, of course. But let’s try to detach from our biases, and consider this market from a purely technical point of view. In other words, by price action alone.

Last week we drew some trend lines on the Nasdaq, along with the advice “hold till the trend breaks, then sell”.200907-MM01

So we revisit that chart and we see that the trend – as measured by this red trend line below – just managed to stay intact. The Nasdaq sold off, hit the trend line, then bounced off it.

So there is one reason to stay long. If you’ve been long the Nasdaq, now might be a good time to take some profits

As you know, I like moving averages as a measure of trends. Depending on what moving average you use, you get the trend of different time frames.

The six-day simple moving average will show you the average price of the last six days – the six-day trend in other words, with all the price volatility smoothed out. When a price is moving up, the moving average will give you a smooth line up, and when a price is falling, the moving average will give you a smooth line down. If you are a trend-follower, the moving average will present to you that trend, and you simply follow it.

So here is a chart of the Nasdaq with several different simple moving averages (MAs). In yellow, we have the six-day; in red, the 21-day; in blue, the 55-day; and in green, the 233-day (effectively a one-year MA).

If you like to place several bets per week, you might use the six-day. If you like to trade once or twice per month, you might use the 21- or 55-day. Once or twice per year, then you would revert to the 233, or a similar time frame.

In a full-on bear market you will see the price below all of those MAs.

But big trends start with small trends. At present the six-day moving average has been broken and is now sloping down. The 21-day has also been broken and is flattening. These are both signs of a trend reversal.

The 55 and 233 are still intact and very much sloping up, so, on a longer term basis, the bull market is still very much intact.

Long-term value buys and sells are best placed around long-term moving averages such as the 233. In August 2019, for example, or in March of this year. But with the short-term change of direction, there is a valid reason to be taking profit off the table.

What happens this week could tell us whether it’s time to short the Nasdaq or not

I like to use moving average crosses as buy or sell signals. Quite a useful pair for trading intermediate-term trends is the 21- and nine-day exponential moving average combination. (Exponential moving averages give extra weight to more recent days.)

Below, on this daily chart, we see the nine-EMA in red, and the 21-EMA in blue. When the red line crosses up through the blue, and the price is above, there is your buy signal. When the reverse happens, and the red line crosses down through the blue and the price is below, that is your sell signal.

Be warned: the system works beautifully in trending markets. It is utterly useless in range-trading markets.

Here we see the Nasdaq over the past year. The system has worked a dream. Two buys and one sell. It made you a lot of money.

It is setting up for a sell now, but we are not quite there yet.

If the Nasdaq rallies this week, there’ll be no signal. But if it stays flat or it descends, then we get our sell signal. A sell signal by this measure combined with a violation of the trend line (in the first chart I showed) will be pretty definitive.

Treat yourself to the best laptop you can buy

Laptop computers don’t get much better than Apple’s MacBook Pro, says Joseph Green on Mashable. “It has everything you need to work efficiently and a whole lot more to keep you entertained.” It has a ninth-generation, six-core Intel Core i7 processor, a six-speaker sound system, and a “stunning 16-inch Retina display with True Tone technology”. The battery should last a working day, only needing to be plugged in after 11 hours. The Touch Bar is also a nifty feature, placing keyboard shortcuts front and centre. “If you can get over the massive price tag, this is probably your best option for working from home.”

Apple.com, from £2,799

Add a touch of inspiration

The work from home situation may not be “quite as temporary as we thought” for many workers, say Jeremy White and Chris Haslam on Wired, so it makes sense to invest in the best kit and “add a touch of inspiration”. The Form3 3D Printer fits the bill. Unlike typical 3D printers, which “squirt out molten plastic”, the Form3 uses ultraviolet light to “cure liquid resin into a solid”. The results are “exceptionally crisp and clean, ideal for prototyping and small-scale production runs”. It’s controlled using intuitive 3D-design software and connects to Wi-Fi. The basic package includes all the essentials you need to get started and additional resin is available.

Formlabs.com, from £2,900

Keep your back happy

When it comes to office chairs, Herman Miller is “very much the big name in the market”, says Max Freeman-Mills on Pocket-Lint. Its Aeron Office Chair is “about as comfortable, supportive and adjustable as a chair can be”. The mesh back allows your body to breathe, the armrests make it very comfortable and the modern aesthetic is pleasing. “If you’re looking for a chair you can trust to keep your back happy, this is a safe bet.”

Johnlewis.com, £1,099

Look the part on Zoom

Though most laptops include built-in webcams, they tend to be “fairly basic”, says Cliff Joseph on ZDNet. Business users who want to project a more professional image could do with a dedicated webcam, and Logitech’s Connect is a versatile option. It is designed to sit on a desk rather than be attached to a computer screen and the lens view is adjustable through a handheld remote control that allows you to pan and tilt the lens. The camera provides 1,080p and 720p video modes, with four times digital zoom and a 90-degree field of view that allows users to step back if they need to give a presentation. It has two internal microphones and also works as a speakerphone for audio calls.

Logitech.com, £439

Drown out the irritations

Working from home means that noises once absent from the work place become part of your daily environment, says Gregory Han on Design Milk. Children, pets and the washing machine can make it hard to concentrate. A pair of active noise-cancelling headphones, such as these Bang & Olufsen Beoplay H9s, can help. This comfortable and stylish pair from the high-end Danish luxury brand features advanced active noise-cancelling technology and 25 hours of playtime. If you need to hear what’s going on in your surroundings, “transparency mode” can be turned on with the dedicated button for voice assistant, from which you can also request your favourite song, the weather report, and get your latest notifications.

Johnlewis.com, £450

Margrethe Vestager loves to portray herself as the European Union’s competition powerhouse. The bloc’s competition commissioner talks endlessly about how she is turning Brussels into a self-proclaimed regulatory superpower and how she’s the only person willing to stand up to the power of Big Tech, dishing out fines so huge they are now a major source of EU revenues. Vestager is the closest thing the European Commission has to a superstar.

But there is a problem. It is increasingly becoming clear that she is also out of control and that her frequently illegal decisions, and her absurd faith in the power of regulation, are doing huge damage to the European economy.

The courts row back

Last week, the EU’s second-highest court overturned her decision of four years ago to block the merger of the O2 and Three mobile networks in Britain. There were, it concluded, “errors of law” in the decision and the EU had failed to prove that consumers would be harmed. That is not the first time Vestager has been overruled by the EU’s own courts. Last year an order to make Starbucks pay back €30m in taxes to the Netherlands was overturned. Many more appeals are making their way through the legal system. Google is fighting back against the fines it has been forced to pay and the changes demanded to its business model. Apple is fighting back against the vast fine levied on it for basing its operations in Ireland. Legal experts argue both cases have a good chance of success.

Many of Vestager’s decisions are simply bizarre. It is hard to understand why Apple’s tax arrangements were a “competition” issue rather than, er, a tax one. Likewise, the EU’s insistence that Amazon and Google somehow harm competition won’t make much sense to consumers or businesses. Open search and sales platforms have made most markets much more competitive than they used to be and price competition is often so brutal that it is virtually impossible for anyone to make any money.

Meanwhile, a few favourite European companies appear to be able to do anything they want to. Germany’s massive bail out of the airline Lufthansa, along with a block on any foreign takeovers, appears to have been just fine with the Commission. Competition laws are being suspended to prevent Chinese takeovers, while Volkswagen’s manipulation of diesel emissions, probably the worst corporate scandal of the last decade, doesn’t seem to have prompted any serious criticism from Brussels.

Industrial strategy by the back door

In truth, Vestager has been waging a campaign to use competition policy to create a European industrial strategy. But it isn’t obvious that people in Europe want an industrial strategy cooked up in Brussels and even if they did they probably couldn’t agree on what it should be. Her war on technology more often seems waged on behalf of old vested interests than for consumers. Perhaps most seriously of all, Vestager’s insistence that Europe can regulate its way to success is simply crazy. She makes a lot of noise about using the size of the European market to impose global regulatory standards that companies everywhere will have to follow. But while that might be great for the regulators in Brussels, it doesn’t make the European economy any stronger.

Meanwhile, Vestager herself comes under very little scrutiny. Before Brussels made her the most powerful regulator in the world, she was an obscure Danish minor-party politician who had never held a proper job and was shuffled off to the EU as part of a complex coalition deal. Danish voters never thought much of her, never mind voters anywhere else. It is as if we suddenly found Jo Swinson – remember her? – was in charge of European industry. A few of us might be scratching our heads and wondering how that happened. Vestager symbolises everything that is wrong with the EU. Unelected, unaccountable and out of control, it is hard to see how the continent can ever prosper with someone wielding so much power over the economy.

Over the past two decades, outsourcing production has been one of the key trends in global business.But it is a relatively new phenomenon. In the early 20th century, manufacturers using the new techniques of mass production had to build their own supply and distribution networks because the alternative – external suppliers and distributors of sufficient scale – did not, on the whole, exist.

These firms were “vertically integrated”: they performed most, if not all, of the activities required to bring a product to market because they had to. But as technology advanced and the global economy became more sophisticated, the tide began to turn and by the end of the 20th century the fashion was to “de-integrate”. Companies preferred to outsource less profitable activities to specialists who could do them more efficiently and focus on where they could add more value: making distinctive products and services that would be more lucrative.

The corporate tide is turning

The poster child for de-integration and global supply chains is Apple, which famously outsources the assembly of the iPhone. A closer look, however, suggests that the story is more nuanced. Though Apple does not assemble its products, it is a vertically-integrated company in many respects. It provides the operating system, App Store, the marketplace for services that make the phone functional and some of those services, such as iTunes.

You may well have bought an iPhone directly online or from a physical Apple Store, where you can also get support and repairs. Since many of the components in a mobile phone are fairly generic and the capacity to manufacture electronic devices in huge quantities is already established in the Far East, there would be little to gain and much to lose by taking production in-house. But, in common with many of its peers, Apple seeks to control the experience of its customers from design, through software, to sales and service. This is where Apple can add most value.

When vertical integration works for you...

Today, companies are thinking again about reintegration. Technology giants such as Tesla, which sells electric cars through its own outlets, and streaming service Netflix, which is making films and TV programmes, are behaving like the giants of yore. So-called “fast fashion” suppliers such as Zara take manufacturing in-house to reduce the time it takes to respond to new fashion trends. The risks inherent in lengthy supply chains have become more apparent with time. The more companies a product passes through before it reaches the customer, the more places the chain can be broken or costs introduced, either due to problems at individual suppliers, or because of threats such as trade barriers and Covid-19, which has closed iPhone factories in China. Sometimes managing complex supply chains is more onerous than doing the work in-house.

When customers require very high-quality standards, a company may decide the only way to comply is by taking overall control. When you’re selling trench coats for over £1,000 and handbags for little less, pretty much everything about them must be perfect – the product, the in-store or online experience and the story marketers tell about them. So luxury-goods companies such as Burberry vertically integrate to guarantee quality and justify the price tag.

If supply of a material required for production is restricted, a more vertically-integrated approach makes sense. Churchill China, a manufacturer of tableware for the hospitality industry, is dependent on a particular type of clay to manufacture hard-wearing plates and bowls. The manufacturing processes it has developed over centuries using this clay enable it to make robust tableware cheaply and distinguish it from competitors abroad, which explains why, in 2019, the company took control of its supplier.

Companies vertically integrate when their customers or suppliers are in a stronger competitive position. When Treatt realised multinational flavour houses were increasingly sourcing citrus oil directly from fruit-juice processors and by-passing distributors like itself, it went on the offensive, inventing uniquely flavoursome ingredients and combinations of ingredients it could sell directly to the flavour houses’ customers, beverage companies such as Pepsi and Coca-Cola. As Treatt has increased the number of “value added” products it sells, it has earned higher and more stable profits, giving investors the confidence to stump up the cash to part-fund the next phase in its evolution, a new “science-led” headquarters.

... and when it works against you

The downside of vertical integration is the cost. Vertically-integrated companies must finance numerous activities, which often requires high fixed costs, such as factories, equipment, vehicles and shops. When demand falls, even temporarily, it is difficult for vertically-integrated companies to reduce costs in line with revenue and the impact on profitability can be dramatic. If a company lacks the financial reserves to weather a recession, it will be forced to sell assets and make staff redundant at more cost in terms of money, morale and the firm’s reputation. Revenue would fall at de-integrated rivals too, of course, perhaps further if their businesses are less highly regarded, but more of their fixed costs are shared by suppliers.

For instance, in its report for the half-year to December 2019, Renishaw, a highly profitable vertically-integrated manufacturer of machine tools, said slowdowns in some of its markets and trade tensions between the US and China meant revenue had fallen by 13% compared with the half-year ending in December 2018. Profit fell by 76%, though. Jitters over the outlook wiped 45% off the stock in a year.

Even though Renishaw has no debt and large cash reserves, it has had to close one of three manufacturing sites. Renishaw’s long-term prospects are auspicious: demand for its technology should increase because it helps manufacturers automate and vertical integration means it should capture the profit. It owns its own intellectual property, uses its own tools in manufacturing (giving it insight into how to improve them) and sells directly to manufacturers through offices around the world.

From a long-term investor’s point of view, then, financially robust and highly profitable vertically-integrated companies are a compelling prospect. As Renishaw’s recent experience illustrates, however, investors should be prepared to ride out some nasty short-term share-price dips. Here are my favourites to consider.

Dart Group

(Aim: DTG)

The demise of Thomas Cook in 2019 highlighted key differences between the business models of rival package-holiday companies. Both Tui, the UK’s biggest package-tour company, and On the Beach, the third-biggest, lost revenue because customers on package tours they had sold were unable to fly. Both companies had booked their customers on flights with Thomas Cook.

Tui does fly its own planes, but it sometimes uses other airlines. Online travel agents such as On the Beach do not operate planes. They just book passengers on scheduled flights, often with low-cost carriers such as Ryanair. The only major UK package-holiday company unaffected by the end of Thomas Cook was vertically-integrated Jet2holidays, which flies holidaymakers on its sister airline, Jet2.com. Jet2holidays was the UK’s second-biggest package tour operator even before Thomas Cook vanished. Founded after On the Beach, it has grown faster in terms of the number of passengers it is licensed to fly. When Jet2holidays says it takes you on holiday, it really does. Jet2holidays markets holidays to families and being in control of the flights means it can make life easier for passengers, providing family-friendly flight times, generous baggage allowances and in-resort check-in, for example, which cannot be replicated by its rivals. More than half of customers rebook with Jet2holidays within 18 months, testimony perhaps to an integrated experience.

Jet2holidays is the engine of fast-growing Dart, which also owns a much smaller logistics business. The group earned a fairly typical 13% return on capital, a key gauge of profitability, in the year to March 2019 and the shares look fairly valued on a debt-adjusted price/earnings (p/e) ratio of about 19.

Games Workshop

(LSE: GAW)

Games Workshop is the company behind Warhammer, a unique presence on the British high street. The stores are dedicated to a single hobby, Warhammer, which involves painting science-fiction and fantasy-themed model soldiers and associated props and using them to play out fantasy battles according to rules made up by the company. The battles are set in two imaginary universes with rich histories mythologised in countless books and magazines published by Games Workshop.

It is, perhaps, the most vertically-integrated company of all those mentioned in this article. Games Workshop manufactures models in Nottingham and operates two additional distribution hubs in Memphis, Tennessee and Sydney, Australia. From these it supplies its own stores, customers who order online and independent hobby stores. Over half of total revenue in 2019 was earned through Games Workshop’s own channels.

The company has experienced a dramatic surge in popularity in recent years. This is due to incremental improvements inspired by insights only possible because of Games Workshop’s deep-rooted relationship with its customers, from which it recruits store managers. It has changed the materials it uses to make more detailed models, relaunched games with simpler rules and new stories and launched Warhammer Community, a website that supports and markets the hobby. It also earns income from video-game developers, who license Warhammer’s characters and stories, and is planning a TV series.

Surging sales have led to an even more remarkable increase in profit due to the company’s fixed cost base. In 2019, Games Workshop earned a remarkable 45% return on capital, three times the return it earned a few years earlier. The shares are not cheap, though. They are on a debt-adjusted p/e ratio of 35 and recent sales of shares by directors suggest that, for now at least, the share price is finally catching up with expectations.

Greggs

(LSE: GRG)

Greggs bakes its own sausage rolls and pies and delivers them largely to its own outlets in towns, increasingly locating them where people work, such as industrial estates, rather than where they shop. About 10% of revenue and a slightly smaller proportion of profit comes from franchises, principally in transport hubs, such as railway stations and motorway services.

The company is nearing the end of a “once in a generation” investment programme designed to complete the transformation of a traditional bakery chain serviced by in-store and regional bakeries into a larger chain of fast-food outlets serviced by a centralised supply chain. Greggs claims the vertical integration aspect of the business plan enables it to operate more efficiently than competitors who keep food on shelves longer and charge higher prices.

It also helps Greggs innovate, putting new recipes on shelves faster, culminating last year in its popular Quorn-filled vegan sausage roll. The vegan roll is one reason the company expects to report bumper revenues in full-year results for the year to December 2019 when it announces its annual results in March.

Greggs’ return on capital has improved marginally since switching to food-on-the-go and a centralised supply chain, despite the extra capital it has been investing. In 2018 Greggs earned a return on capital of 14%, although the share price, £22.50, implies a full valuation. Greggs’ debt-adjusted p/e ratio is 30.

Victrex

(LSE: VCT)

Victrex manufactures PEEK, the lightest, strongest and most durable of polymers – so strong it can be used in applications previously reserved for metal. PEEK components weigh less and last longer than their metal counterparts. As a thermoplastic it is relatively cheap and easy to manufacture into components for a wide variety of applications, from medical implants to gears and car-brake components. Having invented PEEK in the 1970s, Victrex has continuously developed new grades of this polymer, enabling it to keep ahead of competitors and dominate the market. Today Victrex has more than 60% of global PEEK production capacity and supplies many proprietary grades and forms of the material. It is vertically integrating, buying component manufacturers or forming joint ventures with them to develop new applications, which the company says will enable it to grow faster.

New markets present new challenges, however. Victrex must persuade engineers and surgeons to use PEEK when they are accustomed to using metal. Medical applications, such as knee implants, must go through clinical trials and Victrex is finding it difficult to crack the fragmented dental market. Its programme to manufacture sub-sea oil pipes has been affected by reduced investment due to weak oil prices.

Inevitably, developing new markets requires patience, but Victrex is one of only a handful of PEEK producers, unique in its ability to develop high grades of this material and manufacture part-formed and finished components.

The company has published full-year results for the year to September 2019. It achieved a below-par return on capital of 21% owing to weak demand in two cyclical markets: vehicles and semiconductors. The shares look reasonably priced on a debt-adjusted p/e ratio of 23.

Vitec

(LSE: VTC)

Vitec is a manufacturer of equipment for various types of camera, including those used in motion-pictures and smartphones. It is vertically integrating, having recently acquired a supplier and launched websites to sell directly to retail customers. Photographers can buy Vitec’s consumer-focused brands, which sell tripods, bags, lighting equipment and motion-control rigs. Meanwhile, the acquisition of wireless video provider Amimon in November 2018 saw the vertical integration of a division that supplies professional filmmakers.

Amimon designs chipsets that enable instant wireless transmission of images to monitors used by directors and film crews, doing away with messy and time-consuming cables. Vitec, which also supplies broadcasters, has been a customer of Amimon since 2012, but it claims vertical integration will enable it to bring unique products to market quickly.

Full-year results are scheduled for March and although profit is likely to contract by perhaps 5% due to events Vitec describes as “one-off”, it looks as though the company is adding to its technical, manufacturing and selling capabilities, as well as acquiring and developing new products. Vitec earned a 23% return on capital in the year to December 2018, which is not atypical. The shares trade on a relatively undemanding debt-adjusted p/e ratio of 14.

This article was first published in MoneyWeek magazine issue no 986 on 14 February 2020. To make sure you don't miss out in future, and get to read all our articles as soon as they're published, sign up to MoneyWeek here and get your first six issues free.

When the Soviet Union successfully launched its Sputnik satellite in 1957, the United States was caught on the back foot and national confidence in its technological future dwindled. The humiliation galvanised the country into action. It boosted investment in military capabilities and new technologies; the catch-up effort included the creation of the Nasa space agency in 1958.

The US government was determined to ensure the technological success of its space programme and moon mission. This boosted activity in semiconductors – the key component of most electronic circuits in computers – spearheaded by a business called Fairchild Semiconductor, a forerunner of companies such as Intel and AMD. This all took place around San Francisco and silicon was the key element used in semiconductor technology. Hence the term “Silicon Valley”.

Most people have became aware of Silicon Valley over the past decade through high-profile CEOs and companies such as Steve Jobs of Apple and Mark Zuckerberg of Facebook.

But the competitive drive and innovation that remain hallmarks of Silicon Valley today are a direct result of the US losing ground to the Soviet Union. The subsequent boom across multiple technologies in the area fuelled a revolution that has since helped the US maintain its leading position in global technology.

What semiconductors actually do

Today, semiconductors are of crucial importance to the world of technology. They’re everywhere. We’re exposed to hundreds – possibly thousands – of them every day, and the manufacturers have enjoyed great success. Also referred to as chips, microchips or microprocessors, they can be found across industries and in homes in millions of devices.

What they do can be broken down into three main areas. They can be memory chips used to store and process data. They are also microprocessors that hold the instructions telling computers and devices what to do. And there are chips that go beyond microprocessing; they govern the settings and management of a device.

Common to them all is that manufacturers are always trying to make them cheaper, faster and smaller. Margins outside some niche areas can be very thin, leaving much of the market to long-established players such as Intel and AMD, and to those with enough volume to be able to profit, such as Samsung and NEC. Whereas once the chipmakers would design and make their products, many of them now outsource manufacturing to reduce costs.

Equity returns have been impressive and investors who have overlooked or ignored semiconductor stocks to focus on technology more generally have lost out. Last year US tech stocks returned nearly 47%, but were trounced by US semiconductor stocks, which gained 62%. And over the past decade US tech has delivered 16% a year, while semiconductor stocks have managed 19%. It has generally paid to have above-average exposure to semiconductors.

Look beyond your smartphone

Consumers always want lighter gadgets, more sophisticated apps, faster graphics and sharper photos. What they’re actually demanding is more and better semiconductor technology. Serving them are the big companies that have grown through relentless innovation.

But most users’ tech awareness goes no further than the end-products, such as phones, tablets, consoles and computers from the likes of Apple, Microsoft and Nintendo. Investors should “look through” these devices to see a world of chips, chipmakers and their big global markets. Taking this fresh angle on technology opens a new realm of investment that has performed very strongly in the past.

The fact that semiconductor stocks do not simply track technology, as the differing returns highlight, is due to several factors. Chipmakers generally sell to manufacturers rather than end-users, while devices that chips are used in have their own distinct upgrade and replacement cycles, whether it’s an Apple iPhone or a Nintendo games console. Semiconductor companies also have specialisms, such as graphics or wireless communication, for which demand is not always consistent.

So while the overall sector can perform strongly over both the shorter and longer term, individual stocks’ performances can be more mixed, while the sector also doesn’t move in lockstep with the general tech industry or the overall market.

Given the sector’s products are ubiquitous in almost every global industry, it is highly cyclical, meaning its fortunes can change quickly. The general economy is one thing; there are individual product and customer cycles too.

The sector’s cycle is turning up...

The broader environment has been turning more positive. Last year there were pockets of oversupply that dampened sales. At the same time the trade war between the US and China meant some businesses were less willing to take risks and spend money. As we have moved into 2020, however, better news on the trading relationship and a generally more optimistic outlook for the global economy have bolstered sentiment. Beyond these short-term economic factors, investors have been focusing on demand for chips over the medium to long term, thanks in particular to the emerging 5G network, the “internet of things” (IoT) and artificial intelligence (AI). These themes are seen as drivers of structural growth for the semiconductor sector.

... and several factors are driving structural growth

Key among these is the shift to 5G, the next generation of mobile-internet connection. Some have big expectations for 5G as a transformative step for individuals and society at large. It may be typical to think of 3G, 4G or 5G in terms of personal mobile use and access to online data. However, the speed of data transmission that 5G offers opens the considerable potential for more and more devices, such as household appliances or health monitors, to use the network. Breakthrough areas such as virtual reality, driverless car technology and even remote medical surgery will be able to take advantage of it too.

The lightning speeds have prompted some commentators to consider the introduction of 5G as being just as important as the internet itself, or even the first computer. While it’s early days, the potential for well-placed semiconductor stocks could indeed be significant. There may be fears about mobile-handset growth maturing. But the component parts in each phone and non-phone device will have to rise to meet the higher technical demands of 5G, which is a great opportunity for the chipmakers.

Fridges and boilers are becoming computers

Another major driver is the IoT theme. We have already touched upon the wide range of devices that contain semiconductors. Mobile phones and computers are ubiquitous, of course. Their presence elsewhere is increasing and that’s not going to change. Semiconductors also feature in self-service shopping, travelcards, facial-recognition systems and corporate staff monitoring. They are being added to everything from fridges and boilers to personal-health sensors and state-surveillance systems as technology becomes more embedded in daily life: everything is becoming a computer. The aim is connecting devices so they can send and receive data and thus communicate directly with each other. The best example is the notion of the “smart home”: lights can be switched on when not at home for security, or air conditioning or heating can be activated before you arrive home. Smart watches are another example.

The IoT in industry

Recent examples of embedding chips into new devices include smart lights, thermostats, smoke detectors, cameras and doorbells. Devices to monitor elderly relatives or infants’ health have emerged too, along with products to help people recover from strokes. There’s even been a smart bicycle helmet with voice directions and two-way communications. Every conceivable device is an opportunity for chipmakers.

While domestic applications capture the imagination, the bigger story is digitising industry to create, for example, smart manufacturing. Sensors are key – motion, environmental and vibration sensors can monitor equipment, make production more efficient and help with maintenance. For instance, a sensor can tell a manufacturer and a consumer exactly when a car part has worn out. All this requires a big range of microcontrollers and microprocessors.

Big tech players such as IBM and Cisco are investing in IoT capabilities. It is expected on some counts to be a $1.7trn industry and the technical advances in 5G provide the boost to its growth, with chipmakers such as Intel well placed to gain.

The potential in artificial intelligence

Another breakthrough area is AI. As with IoT there are portfolio managers investing as well as billions of dollars in venture capital deals; believers seem to be putting their money where their mouths are. According to Fortune Business Insights, the AI market is expected to grow to $202.6bn by 2026, up from $20.7bn in 2018.

AI is all about computers and other devices apparently thinking and performing in human ways. It works by processing vast amounts of data and then using it to help people and businesses. It is being used, for example, in finance for helping with lending decisions. AI should bolster overall productivity, sales and efficiency. Most people will perhaps already have some familiarity with AI through virtual assistants such as Siri or Alexa.

Opportunities in the cloud

Other structural drivers include cloud computing. It is being led by tech heavyweights Amazon and Microsoft and involves offering powerful computer storage and processing to users across the internet rather than through more traditional mainframe systems.

The trend is being underpinned by the fact that the number of users, applications and devices is continuously rising. The resulting data is growing exponentially and processing it requires more computing power. If the biggest cloud platforms have more capacity to do this than a company’s in-house IT set up and it costs less to use, is more secure, more resilient and probably more technically adept, then transitioning to the cloud is clearly very compelling. As more organisations switch, more data-storage centres are needed and thus ever more chips.

The vehicle sector will also need more chips owing to the move towards autonomy and environment-friendly electrification. General vehicle safety provision also requires components and is on the rise. Sensors detecting when a car is close to hitting an object and that warn the driver accordingly, for example, should reduce human error and improve safety. Other examples include automated lighting, traffic warnings, navigation instructions, or even collision avoidance when the car takes control. In the future all this could involve car-to-car connectivity via wireless networks to improve road safety further.

An auspicious outlook

The short-term economic backdrop and longer-term factors both add up to a compelling opportunity. Samsung said last month that while it still sees some uncertainties, it expects the global chip market to recover this year, citing 5G adoption and cloud-computing growth. This echoes figures from US chip bellwether Intel, which beat expectations and gave an upbeat outlook – it too drew momentum from 5G and cloud computing.

The longer-term drivers should offset near-term volatility for patient investors. What is certain is that the promise of these life-changing innovations will simply not be realised without the semiconductor companies. That means chip stocks are well worth a look. Below we look at some ways to back the trend through diverse players in the sector.

The chip stocks to buy now

Semiconductor investing offers big potential returns, but volatility can be high. Diversification and patience are key. Specific sector funds aren’t available in the UK, so here are five individual stock ideas.

Nvidia (Nasdaq: NVDA) is well placed to profit from the trends identified in AI and cloud computing. The group is well known for its highly regarded graphics boards and processors that support popular software, such as programmes for video games, and its products also work well in fast data processing, giving the company a leading position in the chip sector.

On the face of it the shares aren’t cheap, having been driven up by enthusiastic supporters. But expectations are rising and growth forecasts are impressive: near-term revenue growth forecasts are 30%-plus. It might be tempting to wait for a pullback, but support is currently strong. It offers perhaps the broadest range of semiconductor opportunities.

For the 5G platform theme, Skyworks Solutions (Nasdaq: SWKS) is worth a look. This $20bn chip stock is well placed, with its activities concentrated on the types of chip needed for 5G.

It has a big supply contract with Apple, which will be launching 5G phones this year. Admittedly, this contract accounts for a great deal of its overall business, but it has other agreements too.

The shares currently trade on around 17 times earnings, which is not too demanding for the expected growth rate. The price target is about 15% above current levels.

Another play on 5G is Micron Technology (Nasdaq: MU). Prices of its chips have been under pressure. However, 5G devices need the types of memory chips that Micron produces and the hope is that this will lead to an improvement in performance this year as take-up of the new technology gathers pace.

Meanwhile, moves into chips that are in demand from driverless cars and AI are paying off. Analysts see scope for the share price to rise from current levels and there are punchy growth rates pencilled in from next year.

A slightly different chip investment angle is through the equipment companies, which make the machines used to produce the chips. This is high-tech, cutting-edge work vital to producing the advanced chips that more and more companies require.

A good example is Europe’s ASML (Amsterdam: ASML). Its expertise is lithography: it uses light to paint tiny patterns onto the silicon. Its latest lithography machines will use extreme ultraviolet (EUV) light, which will allow chips to be made even smaller. ASML is the world’s only maker of EUV lithography machines. It lifted its dividend by 14% earlier this year in addition to announcing significant share buybacks. It expects 2020 to see more sales and earnings growth.

Finally, consider the long-established chip giant Intel Corp (Nasdaq: INTC). There is much to be said for dominant market players in volatile sectors with slim margins. Over recent years it has been a dull performer compared with some peers and 2020 could see that change.

Either way, the stock is cheap as chips. It trades on less then half the rating of the overall sector and yields 2%. Value stocks are winning renewed interest from investors and Intel may benefit from this as the year progresses. Analysts remain cautious, but 2020 has started well, with strong results and an upbeat outlook.

• Stephen Connolly writes on finance and business, and has worked in investment banking and asset management for over 25 years (sc@plainmoney.co.uk)

The UK stockmarket accounts for less than 5% of shares listed around the world, yet the London-listed stocks still dominate most British investors' portfolios. The typical wealth manager keeps around half their clients' equity holdings in the UK, while smaller investors are likely to show an even greater home bias.

The standard argument for investing abroad is to broaden your opportunities. Why limit yourself to investing in the tiny universe of major British tech companies, for example, when you could buy Apple, Alphabet or Microsoft in the US? However, for many investors, that justification isn't especially compelling. The UK market has enough opportunities, as far as they are concerned, that the higher costs and additional complexity of dealing overseas doesn't seem worthwhile.

In reality, the idea that buying foreign shares is still a major hassle is misleading: most low-cost stockbrokers offer access to major US and European stocks at the very least. But it's still pretty understandable why many investors would rather stick to what they know. It's certainly possible to build a diversified portfolio of 20 high-quality companies that you're already familiar with just by investing in the UK market, so expending any extra effort to research international stocks may seem entirely unnecessary.

However, there's one type of risk that it's hard to avoid with a UK-focused portfolio those economic and political threats that are unique to the British economy. Recent wobbles in sterling are a small-scale demonstration of this: the pound is worth quite a few percent less against the euro or the dollar than it was earlier this year, as many holidaymakers will soon be noticing. And the wider trend in markets over the past three years shows clearly how an investor who only buys British is becoming poorer in global terms, often without realising it.

The MSCI UK index has returned around 10.5% per year (including dividends) over the past three years, which is worse than Europe (13%) and the US (17%) in sterling terms. And many of the larger UK companies that make up this index get most of their profits from overseas, which means that their shares tend to rise when sterling falls. The MSCI UK Mid Cap index, where overseas earnings are lower, has returned under 8% per year.

With no certainty about what will happen on Brexit day on 31 October, the simplest way to protect your wealth is to make sure that it's diversified around the world. That could mean investing directly in overseas shares, but favouring UK firms that do most of their business around the world or holding international funds is another simple option.

I wish I knew what diversification was, but I'm too embarrassed to ask

Diversification is the process of dividing your wealth between different investments to avoid being too reliant on any single one doing well. In plain English, it's all about making sure you don't keep all your eggs in one basket. The purpose of diversification is to reduce both your day-to-day risk (as measured by the volatility of your portfolio) and your potential for suffering uncommon but catastrophic losses, while maintaining a decent level of return.

For example, if you own just one stock, then your portfolio is entirely dependent on the fortunes of that one company. If you own 15, then even if one or two perform badly, or go bust, then the others in your portfolio should help to compensate for the loss.

While there's no ideal level of shares to hold, some research suggests that once you get above 20 well-selected shares, the marginal benefits of adding more is small. However, this assumes the shares are themselves well diversified if you hold just 20 oil companies, for example, you are still heavily exposed to the risks of a single sector. In addition, the size of each investment is important: if you have 100 shares, but half your portfolio in a single stock, you are not sensibly diversified. A good diversification strategy combines all these principles: you might set yourself a rule of holding 20 stocks, with no more than two in each sector and no more than 10% of your portfolio in a single stock (and no more than 20% in three and so on).

As well as diversification within an asset class, you should diversify between asset classes, because different assets tend to behave in different ways depending on the economic backdrop. For example, bonds will do well during periods of falling or low inflation, while gold tends to benefit during periods of financial instability. Your exact mix of assets or asset allocation will depend on your investment time horizon and risk appetite.

Companies that spend heavily on research and development (R&D) greatly improve their long-term odds. Dr Mike Tubbs explains what to look out for and what to buy now.

The holy grail for investors is a company that can keep expanding sales and earnings for years on end. A crucial driver of long-term growth is research and development (R&D), which determines how many new and improved products and services a company can come up with and how fast to maintain or enhance its competitive edge. R&D can give sales, profits and share prices an especially big boost if it leads to the creation of a ground-breaking and wildly popular offering; think what the iPhone did for Apple, or the Walkman for Sony.

Fortunately, there is a handy tool for investors to help them identify the companies that should be able to develop and refine their offerings and keep ahead of the game: the annual EU Industrial R&D Investment Scoreboard. The latest one was published a few days before Christmas. The scoreboard records and analyses the R&D and business performance of the top 2,500 R&D companies from all regions of the world, each of which invested at least €25m in R&D in the 2017/2018 financial year. Together these firms comprise 90% of global industry-funded R&D.

There are three main areas where the scoreboard's findings are of interest to investors. These are the ranking of top R&D investors, along with any big changes in that ranking over time; which sectors and regions of the global economy most R&D takes place in; and the companies combining high R&D intensity (the ratio of R&D to sales, which shows how important R&D is as a growth driver) with strong sales increases.

We will look at each of these areas in turn, starting with the top R&D investors. Each year's scoreboard lists the top 50 investors by total R&D and their rank changes. The top ten from the 2018 top 50 are shown in the table below.

The biggest spenders on research

All but one of the ten carmaker Volkswagen are from the high-tech industries of biopharma, software, or technology hardware.Within the top 50 firms there are six that have risen over 200 places in the rankings since 2004. These are Alphabet, Amazon and Facebook from the software sector, Huawei from technology hardware and Celgene and Gilead Sciences from biotechnology.

It is those three sectors that have been major growth areas in the 21st century and where many growth investors have identified successful companies that have proved to be excellent long-term investments. There are also companies that have fallen in the rankings or dropped out of the top 50 altogether. The 2004 top 50, for instance, included Canon, Hewlett Packard, Philips and Toshiba.

The countries and regions that invest the most

The major world regions have rather different sector specialisms when it comes to R&D. Worldwide R&D growth in 2017/2018 was spearheaded by the information and communications technology (ICT) sector, followed by health. The US has 51.4% of its R&D in ICT but only 7.8% in the car industry, compared with the EU and Japan with only 20.1% and 24.9% respectively in ICT, but 30.5% and 30.8% in the automotive sector.In the broad health sector (health, biotech, pharma), the US has 26.7%, the EU 22.4%, Japan 12.4%, and China only 3.4%. Given that the US accounts for 37% of the R&D of the top 2,500 companies, any investor seeking exposure to ICT needs to include US companies with perhaps a few from China, such as Tencent. In health, Europe and the US are the places to look.

The UK does well within the EU, accounting for a large proportion of companies closely involved with R&D. The top 1,000 EU companies with R&D over €8m include 275 from the UK, compared with 219 from Germany and 111 from France; the largest three countries of the 28 in the EU thus account for over 60% of these 1,000 companies. In software, there are 109 EU companies in the top 1,000, of which 48 are from the UK; in technology hardware 11 of 43 EU firms are British and in biopharmaceuticals almost a third are. The UK is therefore strong in these high-tech sectors. As far as R&D intensity is concerned, biopharma, software and tech hardware have the highest average scores. The top-50 companies who spend over €1bn on R&D have intensity scores greater than 13%: they spend at least this proportion of their sales on research.

The US has 25 of these, Europe 16 and Asia nine. The scoreboard's top ten by R&D intensity include Bristol Myers-Squibb, Merck, and AstraZeneca from the biopharma industry, Taiwanese semiconductor group MediaTek and its US counterpart Qualcomm from tech hardware, and Chinese travel software producer Ctrip.com International. The top ten all spend between 24% and 30% of sales on R&D.

Who are the most effective innovators?

However, while R&D intensity is important, so is whether it is being put to good use and driving sales growth. So the next step is to identify companies with the combination of high intensity and high growth. The top 250 by R&D in the 2018 scoreboard include all the firms with R&D of more than €500m.

From these, we select those with both R&D intensity, R&D growth, and sales growth of more than 10%. There are just 31 such companies, and 23 are American. All but three are from the three high-tech sectors of software, hardware and biopharma.While growth from one year to the next is creditable, growth maintained over several years is far more impressive since it implies sustainable expansion.

The table below therefore shows those companies from the top 250 that had R&D intensity and sales growth in double figures not only in the 2018 scoreboard but also in the 2017 and 2016 editions too. As an added precaution, all also boast double-digit R&D growth in the past three years. There are a mere eight companies that fit the bill. Since the scoreboard data was collected, Huawei has suffered from many Western governments banning its products from core telecom networks amid concerns over Chinese cyberspying. This is likely to reduce its growth rate.

Using R&D to guide investment

R&D is a useful addition to other more conventional criteria when selecting a portfolio of growth companies. Ideally, an investor would like to identify stocks with a strong position in their global sector and sustainable profitable growth. A record of profitable growth over recent years is one useful indicator and another is a "wide moat" an entrenched competitive advantage that means competitors find it difficult to enter the company's market or to compete with it effectively if they do. Examples are patents or a strong brand, such as Google, which is so strong in fact that its name gets used as a verb, and it looks set to dominate internet searches for years to come.

What to buy now

Put this all together and we are left with several names that merit consideration for your portfolio, starting with Alphabet (Nasdaq: GOOGL), Amazon (Nasdaq: AMZN) and the cloud-computing and software specialists Salesforce.com (NYSE: CRM). These three have very strong positions in their sub-sectors, wide moats, promising prospects and look very low risk.

Consider also pharma giants Johnson & Johnson (NYSE: JNJ) and Merck (NYSE: MRK). Finally, I would add my long-standing favourites Renishaw (LSE: RSW), a world leader in precision metrology and ASML (Amsterdam: ASML), the Dutch group specialising in precision lithography, a key step in making semiconductor chips.

These are smaller companies: ASML's R&D spending is just over €1bn and its R&D intensity is 12.8%; its sales growth is an even more impressive 33.2%. Renishaw's R&D intensity is 12%, more than double its sector average.

For investors who do not wish to choose individual stocks, there are some investment trusts that have portfolios with substantial proportions of rapidly growing R&D-intensive companies. A good example is Scottish Mortgage Investment Trust (LSE: SMT). Its top five holdings account for 35% of its portfolio and are Amazon (9.3% of the total), US biotech Illumina (8.2%), Tesla (6.6%), and Chinese internet players Alibaba (5.6%) and Tencent (5.3%). Scottish Mortgage's price performance over five years averages 19.7% growth per year (and an annual 23.8% over ten years).

You might not think of the UK as a market full of promising tech stocks. But our small and medium-sized companies are punching above their weight, says Dr Mike Tubbs.

When it comes to technology, Britain's stockmarket doesn't spring to mind immediately. There is no British Google or Apple, while our blue-chip index, the FTSE 100, is resolutely old-economy, dominated by miners, oil giants and banks. But it's time investors took a closer look. While we may not have any national giants, we have plenty of excellent smaller companies with leading positions in global market niches. Many are profitable, expanding rapidly, and offer ample scope for impressive share price gains.

Indeed, there is a palpable sense of excitement surrounding the UK tech sector. The digital technology sector is expanding at an annual pace of 4.5%, around two-and-a-half times faster than the overall economy, and is now worth £184bn. We rank third in the world for total capital invested in digital tech companies, behind America and China, according to research published by Tech Nation, a network of tech entrepreneurs. London is widely deemed the third-most important centre for tech startups after Silicon Valley and New York. Rapid growers such as Deliveroo and TransferWise tend to hog the headlines, but a more obscure and fruitful area for investors is software. This sub-sector has expanded at an annual rate of 10.1% over the past five years and boasts sales of roughly £29bn.

UK software's strength in depth

A good example of how Britain has established a strong foothold in this sector is Craneware. A healthcare software firm, it has become the leading supplier of financial and performance-management software to US hospitals. Almost a third of registered US hospitals are now Craneware customers. Its shareholders have been rewarded by a 23-fold rise in the stock between January 2008 and October 2018.

Craneware offers US hospitals 16 different software packages including revenue recovery and retention, claims analysis, patient engagement (whereby patients can access their records and make appointments, for instance) and cost analytics. Craneware is growing both by introducing new software applications to existing customers and by recruiting new hospitals. Its revenue for 2017-18 grew by 16% to £67.1m.

Research and development (R&D) has been key to achieving leading market positions such as Craneware's, underpinning growth that has often been supplemented by bolt-on acquisitions. The EU industrial R&D Investment Scoreboard 2017 highlights the strength in depth of UK software. It lists all the EU software and computer services companies investing at least €7m annually in R&D. The UK boasts almost half the EU total, with 56 firms out of 114, followed by Germany with just 19, France with 16, Sweden seven and Finland five. There are also many smaller software companies investing less than €7m a year in R&D. We will concentrate on those focused mainly on software rather than IT services, and with market caps of at least £50m.

Overseas buyers snap up our winners

Given our wealth of software companies it may seem puzzling that there are only two UK software companies in the FTSE 100, Sage Group and Micro Focus. A major reason is that overseas companies regularly snap up quality UK software firms before they get very big. Recent examples include Arm Holdings, a FTSE 100 chip-design software group acquired by Softbank of Japan. Fidessa was a medium-sized, FTSE 250 member and software firm acquired by private equity group ION Capital. A majority stake in Aveva was acquired by Schneider Electric of France. In 2014, Alphabet, Google's parent company, pounced on DeepMind, an artificial intelligence (AI) company established in 2010. Nevertheless, there are still plenty of small and medium-sized software companies with strong positions in niche growth markets.

Wide range of sub-sectors and companies

UK software companies operate in six main sub-sectors: cybersecurity, engineering design, finance and trading, gaming and entertainment, mobile applications and process automation (administrative, production and testing processes). Given the wide range of business processes (BP), this category contains the largest number of companies. When it comes to software processes, many companies are taking advantage of a structural shift whereby clients essentially rent their services on the internet rather than buy them on a disc and install them as they used to. The SaaS (software as a service) model means clients can have their software automatically updated, while it is also easier to sell them related services; recurring revenues tend to be higher under the SaaS system.

Examples of large cybersecurity companies are Avast, a producer of antivirus software that also designs systems to keep mobiles, PCs and office networks safe. It has 400 million users and is a member of the FTSE 250. Sophos, also a mid-cap, specialises in network security. GB Group focuses on identity and location verification. The largest operator in engineering design is Aveva. A big name in the finance segment, with an emphasis on trading systems, is First Derivatives, while Craneware is active in this sub-sector, too. In gaming and entertainment key names are Playtech, Keywords Studios and Accesso Technology. Mobile applications are represented by SafeCharge International. For process automation we cite five companies in different areas FTSE 100 members Sage and Micro Focus, along with Blue Prism, SDL and EMIS Health. Sage specialises in accountancy and business management software for SMEs, Micro Focus in updating mature software infrastructure, Blue Prism in software robots for automating back-office processes, SDL in automated translation and global multi-language publishing, and EMIS in healthcare.

Further details for 12 of these software companies are given in the table above. Note that software is among the economy's more profitable industries, as the double-digit operating margins attest. The more mature companies offer consistent dividends SafeCharge, Sage and Micro Focus yield 3% to 5%, for instance. The faster-growing or unprofitable firms don't pay dividends.

Potential in software small caps

There are also many smaller firms operating in a wide range of niches and geographical regions. Eight of the most intriguing are introduced below and listed below with their key financial data. The largest three have market caps of £250m to £300m and the smallest five £60m to £110m. They are fast-growing and pay little or no income. Most are listed on Aim. Quixant provides gaming platforms for pay-gaming and slot-machines and makes nearly three-quarters of its sales outside Europe. In 2017, earnings jumped by 29% and the group has net cash on its balance-sheet. Microgen offers business-process systems and analysis suitable for chief financial officers (CFOs), and software for the global wealth-management sector. It is a profitable company, with the UK accounting for just over half of its revenue. WANdisco is dual-headquartered in Silicon Valley and Sheffield, with 82% of revenue from North America. It provides software to help ensure crucial parts of a business keep working if there is a cyber attack or some other catastrophe, and also helps firms move their businesses onto the cloud. Orders continue to rise quickly.

Gresham Technologies specialises in software to manage financial transactions and keep data consistent and accurate across databases (data integrity). Sopheon provides software to help companies improve their R&D to achieve shorter time to market. It gains 60% of its revenue from North America and paid its first ever dividend this year. Tax Systems provides corporation tax and associated software to large corporations and the accountancy profession in the UK and Ireland. It narrowed its annual loss from £3.7m in 2016 to £0.5m in 2017. Elecosoft offers software to the architectural, engineering and construction industries the UK accounts for 55% of revenue with the rest from Scandinavia and Germany.

Which ones should you pick?

We would advise against opting for the blue-chip software groups in the FTSE 100, both of which are struggling. Micro Focus saw its shares drop 20% in January when it revealed sales would fall this year following problems with its acquisition of HP Enterprise, while its CEO left in March. Sage has been a sound investment for many years. It produced an organic growth rate for 2018 of around 7% and yields 2.9%. But its market-leading position in small-business software is under threat from cloud-based competitors such as Intuit.

Instead, consider engineering design specialist Aveva (LSE: AVV), which boasts a fine record and a strong market position. In the past few years it has incorporated the industrial software division of its majority owner, Schneider Electric. It is now involved in activities ranging from optimising mining supply chains and utility management to designing smart cities. Aveva yields 1.5% and says it intends to continue a progressive dividend policy.

First Derivatives (Aim: FDP) has notched up 21 years of double-digit revenue growth and recently announced sales growth of 23% for the financial year 2017-18. The dividend was raised 20% but this still only gave a yield of 0.7% since the share price has increased by four times over the past five years.

Then there is Craneware (Aim: CRW), which again has a fine record, a strong market position and high profitability. Among the larger companies growing fast but still making losses is Blue Prism (Aim: PRSM).Nevertheless, the long-term outlook is compelling given that robots doing back-office admin is a strong growth area. So despite an impressive share-price performance in recent years, there is plenty of scope for more. Cybersecurity expert Avast (LSE: AVST) floated in London last May. It is known for its emphasis on security for small and medium-sized businesses, but it is also the world's largest antivirus supplier for consumers.

In the gaming segment, Keywords Studios (Aim: KWS) looks a better bet than the many video-game developers. Keywords provides developers with a full range of software support and services, and has also bulked up with acquisitions. Its clients include most of the top-25 developers, including Microsoft and Sony. It helped produce the famous game Rise of the Tomb Raider.

In entertainment, Accesso Technology (Aim: ACSO) is clearly risky but also offers potentially high rewards. It controls 40% of the North American online ticketing market for theme parks but 5% in Europe and nothing in Asia, so the latter two regions offer clear potential for expansion. Among the smaller companies, we like Elecosoft (Aim: Elco), Sopheon (Aim: SPE) and Tax Systems (Aim: TAX). Quixant (Aim: QXT) is another possibility provided its second half shows improvement as it predicts.

Diversify your software portfolio

In building a portfolio of software companies it makes sense to combine some larger, well-established and dividend-paying stocks with growth-orientated ones of medium size. Those with a wide global spread of sales reduce geographic risk. The 11 companies named above include ten with substantial non-European sales the only exception is Tax Systems, given its focus on domestic tax rules. A software portfolio should also contain some of the large US companies with strong global positions in their sub-sectors. Salesforce.com (NYSE: CRM), the world leader in customer relationship management, is just one of many examples.

Keep an eye on minnows coming to market

There are also many unlisted UK software and AI companies that may list in the future and provide big gains, just as Sophos and Blue Prism have done. Blue Prism's IPO on Aim in March 2016 was at 78p but the shares are now in the region of 2,025p. Fast-growing private software companies include Neuven (human resources software) and Thoughtonomy (automation software).

When it comes to AI, examples to look out for include Darktrace (cybersecurity) now valued at $1.65bn, BenevolentAI (drug discovery), FiveAI (autonomous vehicles), Babylon Health and Improbable (complex virtual worlds for game development). Although one or two of these could see a direct acquisition as DeepMind was for Google, others could easily decide to float in the next few years and could then be the next Blue Prism or be acquired at a big premium as Arm and Fidessa were.

Dr Mike Tubbs owns shares in Aveva, Craneware, Fidessa, Sage, and Salesforce.com

Over the last decade, John Lewis Partnership has been the poster child for worker-owned businesses. It is one of the most popular chains in the country and has expanded both its department stores and its Waitrose supermarkets rapidly, while paying bonuses to staff and keeping its customers happy. If motherhood and apple pie went into business it would do so under the John Lewis brand.

The engine stalls

Right now, however, its engine has stalled. Last week, the chain announced that profits for the first half of this year would drop to "close to zero", compared with £26m in the first half of last year. The bonus would be cut, and a few Waitrose stores would close. It is the most significant setback the chain has faced in years.

Until this month, John Lewis seemed able to rise effortlessly above the existential crisis that has gripped every other major retailer over the last few years. From its origins as a drapery shop on Oxford Street in the 1860s, it remained primarily a London-based business for much of its history. But in the last 20 years it has pushed relentlessly into new markets, opening 50 shops across the country. Its Waitrose unit has expanded even more aggressively and now has 350 supermarkets.

While just about every other retailer has had to cut back and retrench in the face of rising staff costs, punishing business rates, tepid consumer spending and ferocious competition from the internet, John Lewis seemed able to expand with ease. There was certainly an argument that its co-operative ownership model gave it a competitive edge. The trouble is, that may no longer be true. In fact, the collapse in its profits is about to expose the flaws in the model.

Three challenges for co-ops

There are three big problems that all co-ops or worker-owned businesses face. First, there is no real discipline. It is easy for firms to overexpand and for costs to run out of control. Indeed, that may well be the problem at John Lewis. It kept on opening new stores and revamping old ones even when it was clear that retailing was in decline, and every other department store and supermarket was cutting back on space and retrenching. A limited company might have been a lot more worried about the potential impact on the bottom line, and started trimming the portfolio earlier.

Next, there is no takeover mechanism. If the management starts making the wrong decisions, then it is very difficult to change them. There are no shareholders to put pressure on the board, and there can't be a hostile bid, which is usually the ultimate sanctions for a quoted company. True, the staff can vote the board out of office, so long as a mechanism is in place for doing that. In reality, however, that is hard to do. Who is ever going to want to be the staffer who tries to oust the boss?

Finally, there is the risk that the company ends up being run for the benefit of the staff rather than the customers. Opening hours are limited, prices edge up, and holidays and benefits become more generous. There is no real pressure to perform, and not much incentive to work harder. Of course, partnerships have tremendous loyalty, and that can be a positive, especially in a relatively small business. But once it gets above a certain size, it can just as easily become an excuse for complacency.

For all their supposed virtues, co-ops remain only a tiny part of every major free-market economy. If they were as great as they are sometimes cracked up to be, there would be a lot more of them out there. Most very quickly fall victim to over-expansion, poor management, and staff indifference, and often all three at the same time. John Lewis may be about to teach us that although it can work for a while, ultimately the partnership model is even more flawed than the limited company.

Most students are on a tight budget, so if you or your child are heading to university this year, it's important to make your money stretch as far as possible. Fortunately, many companies offer hefty discounts to make it easier.

For example, if you want to buy a new laptop or smartphone, Apple offers "education pricing", which enables you to save up to £339 on a new Mac and up to £50 on a new iPad (although given that Apple products tend to be more expensive, it's worth considering if there are cheaper alternatives). Microsoft also offers big discounts, including the university version of the Office365 suite for £59.99 for four years. Meanwhile, artists can get Adobe Creative Cloud (which includes programmes such as Photoshop and InDesign) at £185.90 per year, a whopping 65% discount.

The price of books can come as a nasty surprise, but Waterstones offers a 10% discount on purchases of £25 or more with a UNiDAYS card (see below). If you order a lot from Amazon, students can get its Amazon Prime service which gives you unlimited one-day delivery, plus unlimited streaming of films, TV shows and music for £39 for 18 months, rather than the standard £95 for a year.

There are also a wealth of great travel discounts. Sign up for a 16-25 Railcard to get a third off all train travel at a cost of £30 for a year or £70 for three years. This also comes with additional perks, including 90% off Youth Hostels Association membership. If you normally travel by coach, invest in a Young Persons Coachcard, which offers a similar deal on National Express coach fares.

Those aged under 25 who have an eye on travelling further afield can pick up an Interrail Youth Pass offering a 25% discount on the adult price, while STA Travel offers exclusive deals on tickets to destinations around the world for students and young people.

Finally, being away from home needn't mean missing out on your daily dose of news. The Financial Times offers a student digital subscription for £137.80 per year, a 50% discount, while you can sign up to The Times for £20 a year this also gives you two-for-one cinema tickets at Odeon cinemas every weekend.

Three tempting student discount schemes

UNiDAYS is an online discount website. In order to access the special offers, you need to be a student in higher education. Once registered, you'll be eligible for a bunch of discounts for free. The service is available online and through an app, so there's no need to carry a membership card. UNiDAYS pays out £5 as a reward if you invite a friend who signs up. Current exclusive offers include 15% off Canon products and 20% off membership at PureGym.

Student Beanshas a similar model, providing exclusive discounts for free through its website and app. Students in higher education are able to register for a digital membership card, which can be used online and on your phone. Exclusive offers include 35% off at the Body Shop and a 20% discount at Thai restaurant Busaba Eathai.

US extra is the National Union of Students' official discount card. It requires you to carry a physical card, which comes at a price of £12 for one year, £22 for two, and £32 for three years. There's also an app to help you locate the discounts closest to you. Of the three options, NUS extra offers the biggest range of discounts more than 200 at present. Current offers include an additional 25% off student ticket prices at Odeon cinemas Monday to Thursday, and a 10% discount at the Co-op.