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.
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%.
While broader equity markets are only seeing modest declines, tech stocks aren't so lucky. The Nasdaq-100 (QQQ -0.8%) had its lowest print since October this morning before recovering slightly.
Chinese tech stocks (KWEB -4.3%), including 2013 solar high-flyers (TAN -4.2%), are especially hard-hit following a Shanghai selloff triggered by PBOC withdrawals. Other Internet (PNQI -2.3%) and social media (SOCL -2%) stocks aren't faring much better.
Will earnings season come to the rescue? Intel and Yahoo report after the bell today, and Google and IBM after the bell tomorrow.
Only 5 of the 10 largest tech companies by market cap were on 2000's top-10 list, notes VC Matt McIlwain in a column highlighting the risks posed to tech investors betting heavily on IT giants.
McIlwain also observes 7 "big tech" names - IBM, H-P, EMC, Oracle, Cisco, Microsoft, and Intel - have collectively seen nearly flat sales/profit growth over the last two years. Recent industry sales figures - PCs, servers, storage - help explain why.
He argues recent trends - the mobile transition, the rise of subscription-based cloud apps, the migration of workloads to cloud infrastructures - makes him "a doubter in aggregate future value creation for current Big Tech companies."
The business model changes caused by the cloud shift, and a general pickup in the pace of change, especially worry him. Sales policies need to be overhauled to deal with subscription pricing; traditional "account control" is undermined as decisions shift from CIOs to individual departments; and companies with tens of thousands of employees have a harder time quickly reacting to change than smaller firms.
"Warehouses over townhouses" is one of BAML's ten themes for 2014 - highlighting a potential shift away from consumer-driven stocks to industrial and commercial names.
"If revenue growth continues to accelerate as we expect, corporations are likely to invest in their businesses by spending some of the cash accumulated on their balance sheets. This capex cycle, combined with improving global economic growth, is likely to benefit stocks in more industrial and cyclical parts of the economy over those that are more dependent on the consumer. In our view, this has already started, but probably is in its early stages."
An attached chart shows this outperformance beginning to creep in in Q3.
If the thesis is correct, investors may want to be sellers of Consumer Discretionary (XLY), Health Care (XLV), and Financials (XLF), and buyers of Tech (XLK), Energy (XLE), Industrials (XLI), and Materials (XLB).
Nasdaq-100 (QQQ) futures +0.9% AH after Microsoft handily beats FQ1 estimates on the back of solid enterprise software licensing growth and smaller-than-feared Windows declines, and Amazon beat Q3 revenue estimates while providing broad Q4 guidance ranges.
Intel (INTC) +1.4% in response to Microsoft's numbers.
The mutual fund giant greatly boosts its ETF presence, rolling out 10 sector ETFs on Thursday, with BlackRock (BLK) - whose iShares has its own suite of sector ETFs - as the funds' sub-advisor. State Street (STT), though, is better-known for its sector offerings. Launching on Thursday - and popular existing State Street SPDR ETFs they'll be competing with:
Fidelity MSCI Consumer Staples Index ETF (FSTA) - XLP.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS) - XLY.
Opening for trade today is ETC's Robo-Stox Global Robotics and Automation Index ETF (ROBO), like its name says, a global play on the robotics and automation industry. The expense ratio os 0.95%.
The tracked index currently has 77 holdings in companies whose main businesses are "the technologies, services or devices that contribute to any type of robot, robotic action or automation system in realms including health care, manufacturing and military applications." There are also a few 3D printing names.
The fund is somewhat comparable to the XLK and IXN, but holdings will be a 40/60 balance between "bellwether" stocks who are clearly tied to robotics and automation, and "non-bellwether" names who get revenue from a specialized or unique contribution to the sector.
Daniel5150+ FollowFollowing- Unfollow|Send Message30 Aug
: Nice place to put your proceeds HSS.Gl the rest of the year
Aug 30, 10:38 AM
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