Trend or bubble: will IT companies continue to grow and whether it is worth investing in them

2020, despite the pandemic, crisis and closed boundaries, became almost the best year in the history of the global IT industry . Apple increased in a price by almost $ 1 trillion, Nvidia doubled, and the total capitalization of the seven of the largest technology companies increased to $ 8.5 trillion. Investors are interested in whether the growth of IT companies is exhausted or there is still potential. On the one hand, the market can sensitively respond to bad news, as it was in January, when it turned out that the rate of vaccination from Covid-19 in the world would be slower than expected. On the other hand, all the largest IT companies reported on record results in revenue and profit, which means that their affairs are completely successful. Together with the investment company , Fried Finance figured out what the largest IT companies could wait for this year, whether it is worth investing in them now, and if so, how.

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Amazing year

2020 was a large triumph for the IT industry. Due to the transition to remote work, dozens of online services selling the subscription grew, people around the world have become the habit of ordering food, medicines and essential things online, the number of orders in all kinds of marketplaces grew. As a result, the largest IT companies in the United States almost doubled in price over the year, and Russian Internet companies also grew capitalization: for example, Yandex increased by almost $ 10 billion in 2020.

The popularity of IT companies in the American market last year was explained by several reasons at once. Firstly, the year for the Internet market, unlike many others, was really successful: while the restaurants were closed, fitness bankrupt, plants stood on quarantines, and shops did not work, online business and leisure services grew. But this is not the only reason. In the USA this year, people were in force, people received money, but they were in no hurry to spend it, instead, preferring to invest excess in the stock market through trading applications of brokers, such as the popular Robinhood, which now has more than 13 million users.

The fact is that newcomers in the stock market often buy papers, which are heard by everyone, experts reason . Therefore, companies such as Tesla or Apple grow the fastest - they are known and loved by ordinary users of investment applications. But, for example, the South Korean Samsung is much inferior to Apple, although the business companies are very similar. The same situation takes place with Tesla, which costs the most expensive auto industry, but in a year it produced only 500 thousand cars, when Toyota makes about 100 million, but costs almost four times less. True, in the case of Tesla and Apple, the market and investors are more important than their technology and innovation - that is, what contribution these companies bring to the development of all of mankind.

Courts and regulators

From the point of view of the policy and regulation of the IT company at the end of 2020, they found themselves in an extremely strange and difficult situation. In the second half of the year, one after another, the American authorities began to publish the results of their antimonopoly investigations against IT giants. The chapters of the four largest companies - Google, Apple, Amazon and Facebook - several times called “on the carpet” to the Congress to justify their absorptions, commission in applications stores and moderation of content during the campaign in the United States. In addition, social networks got involved in major conflicts with Donald Trump, at first banning his protests, then even removing the former American president from his platforms due to incitement after the assault of the Capitol.

As a result, the American IT companies found themselves in a situation where they are facing a whole set of antitrust investigations, some of which have already reached the trial. So, the US Ministry of Justice filed a lawsuit against Google, who calls for dividing his business into parts. And the Federal Trade Commission and 48 prosecutors filed an even more stringent lawsuit against Facebook, intending to force him to sell Instagram and WhatsApp. The European Union also conducts its investigations against Bigta: for example, the European Commission accused Amazon of monopolism.

In parallel with this American Internet companies, an ambulance of section 230 of the Federal Law on Ethics in the field of communications is threatened with an initiative in which Republicans and Democrats were marvelous. This section now protects the company from liability for content that users publish. If it is canceled, the Internet business will be under the threat of constant trials. First, Trump tried to do this, once again quarreling with Twitter and announced too hard to modulate, even censorship. Then the democrats spoke of the same thing, but they are just not satisfied with the too soft moderation of content, due to which a lot of extremist content seeps on the social network.

All these events shocked the user market and for months remained almost the main topics for many American media. However, they did not have a strong influence on the IT company. This is well traced on quotes: for example, Facebook, which sagged in early January, due to a decision to block Trump, almost played his positions back, and NVIDIA, making game processors, has risen in price for the year and so far continues to grow.

Igor Klyushnev

Deputy General Director of IC Frida Finance

Most likely, the legislation will become tougher, but the division of companies into parts, which was discussed in the fall in the Congress, is unlikely. But, even if this happens, it is worth remembering: that the shareholders often only win from the division of business. Changing the legislation can have the greatest effect on Alphabet. Facebook looks a little less vulnerable against the background of large -scale expenses to tighten security and control policies over the past few years.

Year of Records

Although it seems that the clouds around Bigtech are gathering, with business the largest American IT players everything is quite smooth. Six out of the ten most expensive capitalization companies - it is it. The technector accounts for about 30% of all the profit of all enterprises in the S&P 500 index, which is twice as high as the level of 20 years ago.

The reports of the IT sector for the last quarter were significantly higher than the expectations of both the market and the companies themselves.

• Apple , which shares of which increased by 81% in 2020, and market capitalization-by almost $ 1 trillion (only $ 2.04 trillion), increased income for the last quarter by 21%, to $ 111.4 billion. This is a record in the history of the company. Wedbush analysts predict that the Cupertino technological giant will reach $ 3 trillion by the end of the year.
• Microsoft capitalization increased by $ 480 billion over the past year. The profit for the last reporting quarter was already the 19th time exceeded forecasts. Microsoft revenue increased by 17%, which turned out to be twice as high as the company's plans.
• The capitalization of Amazon , thanks to the growth of the cloud business and the trading platform, jumped over $ 710 billion last year. The company is significantly ahead of Google and Facebook growth, in which advertising revenue increased by 21.8% and 31%, respectively. Target "Fried Finance" for shares - $ 3468 at the current price of $ 3092.
• Alphabet , which has risen in price by a year by $ 268 billion, in the last quarter made a profit of $ 15.20 billion compared to $ 10.89 billion a year earlier. The revenue rose to $ 56.90 billion. Analysts of Frida Finance IR increased the target price for Alphabet shares to $ 2250 amid strong results in the business segment and optimistic management rhetoric. The last trading session of the paper was closed at $ 2036.
• Facebook (+$ 193 billion to capitalization) gave cautious forecasts for 2021, noting that investors can expect stable or moderately growing advertising income in the first half of the year, but in the second half of the year it will slow down. It was Facebook - in the very center of the Antimonopoly War, which was deployed by regulators of different countries, but with the Australian government, for example, he has already agreed. At the current price of $ 257 per share, Facebook is a fair estimate, according to the analysts of the Freedom Finance IC, at $ 330.

Neither the economic crisis, nor the antimonopoly investigations with which the IT companies are still doing well, do not interfere with technology companies to overtake their own forecasts. With a high probability, the situation will remain this year, analysts say.

Is it worth it to invest

Igor Klyushnev

Deputy General Director of IC Frida Finance

With a high probability, the market will continue to rise in 2021. A strong organic growth of a number of largest companies will help this. In addition, trends will remain strong to expand digitalization, adaptation of cloud technologies, distribution of 5G, IOT and boundary calculations. Yes, we can say that the IT market is somewhat overheated. Capitalization at the sector companies greatly overtake the growth of financial indicators, and because of this, many multipliers are much higher than in other industries, and even an order of magnitude higher than they were a year ago.

But here it is important to note that, unlike the S&P 500 index, the IT sector showed a positive dynamics of financial indicators. In addition, the growth of assessments was due not only to the interest in the sector as a “protective” asset during the pandemic period, but also by fundamental factors: accelerating digital transformation, increasing cloud and hybrid cloud media, acceleration of artificial intelligence and an increase in analytics relevance. Therefore, we do not expect sudden sales in the IT sector, but we expect the consolidation of quotations. Fundamentally, IT companies remain attractive for investment, which is evidenced by record reports.

Those who want to invest in an American IT sector can start with a small portfolio, which can be collected in any application for the purchase of shares-there are already quite a lot of them in Russia. But investing directly in individual companies is not the only way. You can, for example, invest in the exchange share fund (ETF or PIF). This is a fund, which is a certain set of shares of different companies selected by professional managers. When buying the funds of the fund on the exchange, the investor receives a share in it - that is, a share. Such funds are invested in different industries, including in IT. By the way, last year it was the funds buying the papers of technological companies that took almost all the places in the Russian TOP-10 in terms of profitability.

Broker Frida Finance , with which we dealt with this topic, brought to the exchange such a share fund - “Technology Leaders” . It contains the papers of ten American IT giants, starting from the SalesForce Corporation, which recently bought Slack for fabulous $ 27.7 billion, and Netflix, whose shares in 10 years went up by 6,000%, to the same Apple, Facebook and Google known to all. It is these companies that have been the locomotive of the growth of the American stock market for the past five years.

Over the year, the share of “technologies leaders” on the Moscow Exchange increased in price almost double - from February 2020 to February 2021, the cost of the share increased from 1.1 thousand to 2 thousand rubles. The share of each company in the fund does not exceed 10%, which ensures the stability of the portfolio to sudden corrections of quotations of individual shares. Any investors can buy BPIFs, regardless of their experience and status. You can learn more about the fund and its results here .

Igor Klyushnev

Deputy General Director of IC Frida Finance

The idea of ​​the fund is that in the conditions of zero rates on the market, a huge influx of liquidity comes, which does not enter individual names, but primarily into large indices, the components of which are the papers of world IT giants. If you add a growing business and the further prospects of these companies to this, then the advanced profitability is obtained. So far, all these components are valid, the Technology Leaders Foundation retains attractiveness.

What else is important to know

License to LLC “Management Company“ Vostok-West ”dated August 24, 2010 No. 21-000-1-00749 for the implementation of investment funds, share investment funds and non-state pension funds). Source of information disclosure: www.ew-mc.ru; Address: 123112, city of Moscow, passage of the 1st Krasnogvardeisky, house 15, floor 12, room. 37; Tel.: + 7 (495) 191-83-21.

BPIF of market financial instruments “Technologies Leaders” under the direction of LLC “Management Company“ Vostok - West ”” (trust management rules are registered on 09/24/2019 for No. 3858).

The cost of investment shares can increase or decrease. The results of investment in the past do not determine income in the future, the state does not guarantee the profitability of investment in investment funds. LLC "Management Company" Vostok - West "warns of the need to carefully familiarize yourself with the Rules for the trust management of the share investment fund before the acquisition of investment shares.