Gartner forecasts tech spending will be flat in 2016 at $3.41T. The read from the research company is the first forecast since the Brexit vote.
IT spending forecast by category: Data Center Systems +2.0% to $174.578B, Software +5.8% to $332.21B, Devices -5.3% to $627.24B, IT Services +3.7% to $897B, Communications Services -1.4% to $1.3808T.
"2016 marked the start of an amazing dichotomy. The pace of change in IT will never again be as slow as it is now, but global IT spending growth is best described as lackluster," says Gartner research VP John-David Lovelock.
The fees on the fund giant's 11 sector ETFs will drop to 0.084% from 0.12%, undercutting the sector ETF charges on Vanguard's lineup (currently 0.1%).
Those ETFs with cuts: Fidelity MSCI Consumer Discretionary Index ETF (NYSEARCA:FDIS), Fidelity MSCI Consumer Staples Index ETF (NYSEARCA:FSTA), Fidelity MSCI Energy Index ETF (NYSEARCA:FENY), Fidelity MSCI Financials Index ETF (NYSEARCA:FNCL), Fidelity MSCI Health Care Index ETF (NYSEARCA:FHLC), Fidelity MSCI Industrials Index ETF (NYSEARCA:FIDU), Fidelity MSCI Information Technology Index ETF (NYSEARCA:FTEC), Fidelity MSCI Materials Index ETF (NYSEARCA:FMAT), Fidelity MSCI Telecommunications Index ETF (NYSEARCA:FCOM), Fidelity MSCI Utilities Index ETF (NYSEARCA:FUTY), Fidelity MSCI Real Estate Index ETF (NYSEARCA:FREL)
Making a big ruckus in this morning's news is the European Court of Justice's ruling that deemed a 15-year-old data-sharing pact between the EU and U.S. invalid. The decision cannot be appealed.
"Legislation permitting...access on a generalized basis to the content of electronic communications must be regarded as compromising the essence of the fundamental right to respect for private life," Europe's highest court said in a statement.
The ruling has significant implications on how internet groups can operate in the 28-member bloc, and will likely force thousands of companies to overhaul their businesses to avoid breaking the law.
The financial sector (NYSEARCA:IYF) is far and away the leader in U.S. sector ETF outflows year-to-date, with $4.89B exiting, according to XTF.com. Not surprising, as the sector's been one of the poorer performers even after a nice rebound in February.
The behavior contrasts with what's happening in energy (NYSEARCA:XLE), where bottom fishers have helped those ETFs see inflows of $2.97B - more than any other tracked sector in 2015.
Also notable for outflows are industrials (NYSEARCA:XLI) and tech (NYSEARCA:IYW) - this despite market-beating returns so far this year.
The other sector seeing sizable inflows is health care, with a net $2.74B coming in amid the strongest returns of all the major industries.
"If we thought it was stupid to invest in public Internet websites that had no chance of succeeding back [in 2000], it's worse today," writes Mark Cuban. While that previous bubble was in publicly traded companies, says Cuban, today's comes from private investors bidding apps and small tech companies to the moon.
Thanks to Equity Crowd Funding, startup investing is now available to the little guy, and Cuban estimates there are plenty involved, and he has little doubt most, if not all, are underwater on their investments. Even worse, there's no way out.
An exit, says Cuban, can only come from cash paid out of operations (fat chance) or an IPO, but SEC rules have effectively wiped out smaller public offerings.
So why is today's bubble worse? "The only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity."
"Safety used to mean gold, US treasuries, and blue chip stocks. Now it means Google, Apple, Amazon, and Facebook," says high-profile VC Fred Wilson while offering his 2015 predictions. Though believing rising interest rates and low oil prices will trigger "a noticeable flight to safety," he sees major tech firms continuing to have easy access to capital.
On the other hand, Wilson is cautious on the near-term outlook for the budding wearables market (John Legere feels differently). "Apple Watch will not be the homerun product that iPod, iPhone, and iPad have been. Not everyone will want to wear a computer on their wrist. Eventually, this market will be realized as the personal mesh/personal cloud, but the focus on wearables will be a bit of a headfake..."
He also expects virtual reality to "hit some headwinds" after getting hyped in 2014 following the Facebook/Oculus (NASDAQ:FB) deal. "Oculus will struggle to ship their consumer version and competitive products will underwhelm. The virtual reality will eventually catch up to the virtual hype, but not in 2015."
He forecasts cybersecurity budgets "will explode in 2015 as every company, institution, and government attempts to avoid being Sony’d." But Wilson also thinks "the hacks will continue because on the open internet there is no such thing as an impenetrable system." Cybersecurity plays: FEYE, PANW, FTNT, IMPV, QLYS, PFPT.
Wilson, a long-time Bitcoin (COIN, OTCQB:BTCS) believer, once more defends the cryptocurrency. "The horrible year that bitcoin had in 2014 will be a wakeup call for all stakeholders. Developers will turn their energy from creating the next bitcoin (all the alt stuff) to creating the stack on top of the bitcoin blockchain. Real decentralized applications will start to emerge..."
Patting itself on the back for ringing a bell at the top in 2000, Barron'slooks at today's market and concludes, "This time is different." First up are valuations: The DJIA (NYSEARCA:DIA) sells for 15x next year's expected earnings vs. 18x then, the S&P 500 (NYSEARCA:SPY) at 17x vs. 30x, and the Nasdaq at 22x vs. 2000's 102x.
Secondly, as a group newly public tech names are actually making money as opposed to 2000 when they were burning through billions of dollars per quarter.
The biggest change in Silicon Valley since 2000, however, is entrepreneurs no longer need to take their babies' public to cash out and/or raise massive amounts of capital. And it's in the private market - where venture-capital firms have been joined by mutual and hedge funds - that valuations have become bubbly, with example #1 being Uber's funding round last week valuing it at $41B. That's higher than all but 31 companies on the Nasdaq, and stands against a $17B valuation just a few months back.
There are 60 private companies with valuations above $1B today, according to tech-IPO godfather Bill Hambrecht. "Those 60 companies would have been public in the '90s."
Though considering tech stocks "somewhat overvalued," famed VC/PayPal co-founder Peter Thiel thinks the problem pales when compared with a bond/fixed-income bubble "of massive size." (video)
Thiel: "Tech investors always overrate growth and always underrate durability ... 75%-80% of the value of these companies exists a decade or more in the future ... You can measure growth, but you can't measure durability."
Thiel also reiterates his view that Alibaba (BABA -0.1%), like other Chinese Internet names, is a political entity. "You're betting on Jack Ma staying in the good graces of the Communist Party."
He's a fan of the eBay/PayPal (EBAY -1%) split, but disagrees with Carl Icahn's call for PayPal to go on an acquisition spree. "I think mergers only make sense when there are real synergies .. and it's not obvious what the synergy between PayPal and any other business would be at this point."
GSV Capital (GSVC +1%) might be disappointed to hear Thiel state he thinks "it's going to be a while" before analytics software vendor Palantir (co-founded by Thiel) goes public. Palantir, valued at $9B in a late-2013 funding round, made up 11.2% of GSV's net asset value at the end of Q2.
A cautious stance is shown towards Bitcoin (COIN, OTCQB:BTCS). "I think it's worked on the level of a currency ... but it's not yet worked on the level of a payments system, and you need to get the payments system to work."
As data breaches pile up, Thiel expects cybersecurity to remain a big problem - "So much commerce is happening on the Internet and we often have no good intuition of how poor the security is." - that needs to be addressed by software. Cybersecurity plays FireEye (FEYE +3.1%) and CyberArk (CYBR +6.5%) are among the high-beta tech names rallying today.
The U.S. has warned China that treaties and other global negotiations could be in danger if negotiations fail regarding their high-tech product international trade agreement. The agreement includes an annual $2T in trade, and eliminates tariffs and other trade barriers on IT products.
China has recently excluded approximately 60 new product categories, including medical devices and next-generation silicon chips, from the trade agreement. American authorities are looking to use this week’s annual U.S.-China Strategic and Economic Dialogue to update the 1996 Information Technology Agreement.
U.S. officials warn that if an agreement is not reached, increased opposition will be taken in Congress toward other trade deals with China.
"Price pressure based on increased competition, lack of product differentiation and the increased availability of viable alternative solutions has had a dampening effect on the short term IT spending outlook," says Gartner's Richard Gordon.
Gartner now expects global IT spending to rise only 2.1% in 2014 to $3.75B. That's down from a prior forecast for 3.2% growth, albeit still better than the flat growth seen in 2013. For now, Gartner expects growth to accelerate to 3.7% in 2015.
Device sales (inc. PCs, mobile devices, and printers) are only expected to grow 1.2% in 2014, as PC sales continue declining and ASP drops affect smartphone/tablet revenue.
Data center hardware sales are expected to rise 0.4%, and IT services 3.8%. The cannibalizing impact of public cloud services is expected to continue taking a toll on both markets (previous).
Enterprise software sales are expected to be relatively healthy, growing 6.9% to $321B. Within the market, demand for databases and other types of infrastructure software is expected to hold up better than application demand, which has been dinged by weak PC sales and cloud competition.
After eight months on the market, Fidelity's ten sector ETFs have crossed over $1B in AUM, with the MSCI Information Technology ETF (FTEC) and the MSCI Energy Index ETF (FENY) seeing especially strong interest.
All ten charge annual expenses of just 0.12% - lower than the competition from the likes of Vanguard, BlackRock (BLK), and State Street (STT) - but higher trading volumes from those three's offerings make for lower trading costs.
Like Vanguard's VDE, the Fidelity offerings hold many more companies than those from BlackRock and State Street. The FENY, for example, has 166 stocks vs. the IYE with 84, and 44 for the XLE.
Whereas smartphone penetration in the 15 biggest developed markets was at 65% at the end of 2013, it was only 23% for the 15 biggest emerging markets, notes Mary Meeker in a mobile-centric 2014 Internet Trends Report.
Global smartphone penetration has reached 22%, well above 11% penetration for laptops and 10% penetration for desktops. Tablets are still only at 6%, and mobile phones in general at 73%. There were 2.61B global Web users at the end of 2013, and 1.79B smartphone subs.
Mobile made up 25% of Internet traffic as of May 2014, up from 15% a year ago and 10% two years ago. Asia and Africa are respectively at 37% and 38%. Mobile accounts for over 1/5 of online video time (favorable for YouTube).
Internet ad sales grew 16% last year to $116B. Google (GOOG) had a Q1 annualized ad ARPU of $45 (up $3 Y/Y), dwarfing Facebook's (FB) $7.24 (up $2.84), and Twitter's (TWTR) $3.55 (up $1.58). Mobile is estimated to account for 20% of media time spent, and just 4% of ad sales. For Internet, the figures are 25% and 22%.
Other details: 1) Tech firms account for 19% of the S&P 500's market cap - up from 11% 20 years ago, but well below a Dot.com bubble peak of 35%. 2) Web-connected TVs made up nearly 40% of 2013 shipments, up from <10% in 2010. 3) Facebook made up 21% of social media referral traffic in March (per Shareholic), and Twitter just 1%.