Tech Industry: Why Meta Stock Is Getting Interesting Again – Cash.

Anders Tandberg-Johansen, portfolio manager on the DNB Fund Technology team, on the lures of the gaming industry, the future of tech giants and the magic of artificial intelligence.

A difficult stock market year is behind us. It’s time to take stock – and look to the future. The interactive media and entertainment sector proved to be the weakest sector in our investment universe, down 36%. Finally, shares such as Google, Facebook and Snap have contributed to it. Telecommunications services are doing the best with an increase of a good 2%. With a price/earnings ratio (P/E) of eleven based on earnings estimates for the next twelve months, this sector is currently the most favorably valued. Deutsche Telekom is still in the portfolio. It’s a bet on American business, which is doing very well. Moreover, the P/E is less than four.

Nevertheless, it is difficult for us to be passionate about telecom services. Outside of Deutsche Telekom, it’s hard to see where future growth can be generated. Moreover, the European market in particular is very fragmented and requires consolidation. The Vodafone boss was recently fired. This is not a very positive sign, especially since the group is in the process of acquiring Three UK. In our view, this sector should be one of the losers in the coming year.

We continue to see the games sector as particularly promising. Although it is down 7% this year, it is expected to rise 9% in 2023 and 6% in 2024. Despite attractive growth prospects, stocks in the sector have suffered losses in the post-COVID era. The industry is now trading at a level that opens up some interesting opportunities.

Copy Shakespeare and let the blind see

Big tech names such as Google, Meta, Amazon & Co were among the biggest winners from the corona crisis, but lost a lot of feathers during the growth-to-value spin. Things are now back to normal and some of these titles are very cheap, so to speak. We are in a very interesting situation because these companies are investing heavily in the Metaverse but also in artificial intelligence. In this context, Meta, formerly Facebook, could become a leading stock.

Artificial intelligence is one of the sub-sectors that are still in the early stages of growth. An example is the GPT-3 text generator, which can even imitate Shakespeare, write program code, and translate foreign languages ​​and legal paragraphs. For example, you can ask the computer to write an essay or a letter.

Artificial intelligence has also transformed the music industry. Classical music composed using algorithms is just one example among many. AI is also progressing in ophthalmic optics. Here, AI allows blind people to “see” again through software. Meta has invested $30 billion in this technology. Google, currently priced at a price-earnings ratio of 18, is also likely to play an important role in artificial intelligence. Even a recession, which is likely to be painful for the tech giant, shouldn’t change the good long-term outlook. After that, however, they might present themselves even more strongly.

Fund update

When investing, we favor scalable business models with proven profitability, strong balance sheets, strong cash flows and modest valuations. More recently, we bought Alphabet, Google’s parent company, because of its cheap earnings multiple and because it lags the overall market. We also increased our positions in Meta and in the British media group ITV. At the end of November, the DNB Technology Fund outperformed its benchmark MSCI Communications Services & IT by 10.2 percentage points, despite tech stocks falling less than 9%.

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