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Tech Stocks On Trial

Richard Turnill profile picture
Richard Turnill

Key points

  • Recent weakness in technology stocks reflects rising risks, but we see strong earning growth driving future returns.
  • U.S.-China trade tensions hogged the headlines once again, spurring big swings across global markets.
  • An agreement on NAFTA could be unveiled next week, while a speech by Chinese President Xi Jinping could lay out China's trade strategy.

Global tech stocks - stars of the post-crisis bull market - stumbled in recent weeks. Worries that trade tensions and regulatory scrutiny could dent profitability have shaken confidence. We believe recent weakness reflects rising risks but is not a tech wreck in the making. Strong fundamentals underpin our preference for the sector.

Global stocks vs. technology sector expected sales growth

Sales growth for the global tech sector is expected to outpace that of the broader market, as the chart above shows. The synchronized global recovery is a boon for both, but we believe current estimates for the tech sector have yet to fully factor in a wave of business investment into tech equipment and services (see below). This could propel estimates even higher.

Tech earnings momentum is broad-based, spread across hardware, software and semiconductors - unlike the 1990s, when it was dominated by hardware. And technology stock valuations generally appear reasonable relative to other sectors and their own history. U.S. tech, which makes up 70% of the global sector, trades at 17.4 times forward earnings - only a small premium to both its five-year average and the broader market. Emerging Asia tech, accounting for 18% of the global sector weight, trades at 14.1 times forward earnings - also a small premium to broad emerging market stocks. These valuations appear fair, in our view, given the superior sales and earnings outlook for the sector.

A new phase

Technology stocks have dominated equity market performance and global corporate earnings growth in much of

This article was written by

Richard Turnill profile picture
Richard Turnill, Managing Director, is Global Chief Investment Strategist for BlackRock, leading the Investment Strategy Function within the BlackRock Investment Institute (BII). He is responsible for ensuring we create, coordinate and communicate value added market and investment insights and deliver them consistently to our clients and client facing professionals. Prior to his current role he was Chief Investment Strategist for the Alpha Strategies Group, responsible for developing strategic plans around the Alpha Strategies product range and the positioning of Alpha Strategies products both internally and externally. He has also served as Head of the Global Equity team within the Fundamental Active Equity division of BlackRock's Portfolio Management Group. He was responsible for leading the team which manages large cap global equity portfolios. Mr. Turnill's service with the firm dates back to 1996, including his years with Merrill Lynch Investment Managers (MLIM), which merged with BlackRock in 2006. At MLIM, he led the global equity team and was responsible for overseeing all aspects of the investment process. Earlier, Mr. Turnill was a group economist in MLIM's Central Strategy Group, head of MLIM's asset allocation and economics team, and was the Chief Investment Officer for the Merrill Lynch Global Private Client discretionary business in EMEA Pacific. Prior to joining MLIM in 1996, Mr. Turnill worked in the international division of the Bank of England as an economic advisor and the global economics team of Paribas Capital Markets in London. Mr. Turnill earned an MA degree in economics from Cambridge University in 1991.

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