Remarking upon the volatility that has ravaged many stocks in the technology sector over the past year, Price, a veteran investor, told What Investment that ‘the valuations of tech stocks always suffer when people fear recession. There are recession fears about Europe, the UK and the US, this causes people to flee risk assets, such as technology stocks.’
But he feels that many of the companies in the sector continue to pay dividends and buy back their own shares, and so offer decent returns.
He added that the seminal trend in the technology at present is the move to cloud computing, and away from traditional models of storage.
Price commented that he is invested in Microsoft because that company has adjusted its business successfully for cloud technology, while he shuns IBM because, ‘while it says it is doing cloud computing, I don’t see any evidence that it does.’
The fund manager continued that while another of the megacaps of the technology sector, Amazon, has yet to show much in the way of profit, ‘the company has individual business units, such as its cloud computing unit AWS, which make a lot of money. The reason the company doesn’t as a whole make a lot of money is that it is investing for the future, it is putting infrastructure in now that will be there for years, that infrastructure will put it ahead of many of its rivals and mean it will make money in the years ahead.’
The first stock nominated by Price is Infineon. He commented that the company is engaged in the manufacture of semi-conducters. Semi-conducters are behind most of the modern computer technology, but there are a lot of participants in that particular market, meaning the companies haven’t been a particularly enchanting investment in recent years. The semi-conductor is the micro-ship that conducts the electricity powering all computers.
Price thusly qualified the business model of Infineon by saying that the company makes semi-conducters specifically used in trains, and he feels the growth will come from the use of that technology in cars, as pressure comes onto motor manufacturers to make their vehicles more fuel efficient.
Infienion Technologies is listed in both Switzerland and Germany. There may be some currency advantage for UK investors in owning the Swiss shares. Price remarked that while such a currency advantage is helpful, he is more interested in the company because he believes it will make considerably more money from here.
The second stock mentioned by Price is Lam Research. This is a US company that is involved in making the equipment that is used in semi-conducter machines. Price commented that the advantage of investing in this stock is that it doesn’t matter which of the large technology companies actually emerges supreme in the coming years, because Lam Research sells its products to almost all of the large players.
Lam Research is a giant company, one of the hundred largest on the Nasdaq. The market cap is over $14 billion. For the year to the end of June 2016, the company posted a profit of $740 million, on a turnover of $5.2 billion.