Tech’s outperformance is also persistent: it has beaten the index solidly over
the past five years. Given the dreary world economy, however, it is wise to
keep an eye on the fundamentals. The 10 biggest tech companies by market cap
after Apple – a group that includes US giants such as Cisco and EMC and
international ones such as Samsung and SAP – continue to report solid
numbers. All of them reported higher earnings before interest, taxes,
depreciation and amortisation in their latest quarter against the previous
year.
Some are seeing decelerating revenue growth (IBM, Microsoft, Oracle) but the
pattern is not pervasive. Valuations are sane: forward price to earnings
multiples remain near or below the market average, with a few slightly
pricier exceptions (Google, Qualcomm).
Change in weather
The arguments for owning big tech companies remain. They sell globally; their
biggest buyers are corporations, which have stronger balance sheets than
consumers; and growth trends from cloud computing to mobile are going
strong.
Cautious comments by the most cyclical of the tech companies – the chipmakers
– are worrisome, though. In its second-quarter report, Intel tempered its
sales outlook and waved towards macroeconomic weakness. Taiwan
Semiconductor’s management stated that the economic outlook was
“deteriorating” and expected revenue to dip in the fourth quarter. The
summer rally made sense given the fundamentals. Be alert for a change in the
weather.
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