- Tuesday, March 1, 2022 – 11:03 am
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The profound changes we have experienced in recent years in how we work, consume and communicate have increased the disruption that information technology has already caused and is driving progress in, for example, cloud computing, internet of things, streaming and artificial intelligence.
The abrupt—and forced—transition to a more socially distancing lifestyle has led to a growing demand for technology and innovation to support virtual, online, and cloud-based solutions for many everyday interactions. The widespread adoption of remote work is unlikely to stop once the pandemic has completely subsided.
The pandemic has also sparked a surge in automation, especially in the service sector, where initially many workers were off work for months due to social distancing, and later fears of infection at work led to extended absences.
E-commerce has grown significantly and has spurred online advertising and electronic payment services. First of all, it caused a real boom in the field of physical and automated storage and home delivery.
It should be expected that an increasing number of businesses will use both physical and online sales channels. Augmented reality, for example, makes shopping easier and more enjoyable, and dynamic pricing that adapts to consumer demand should support profits and revenues.
Technological tools will solve complex problems in many industries
Big data, artificial intelligence, data analytics, or cybersecurity are all now considered important areas to overcome the complex economic, demographic and social challenges that many sectors face. Digital transformation has become inevitable for the whole of society, and countries need to act quickly to prevent the growth of the digital divide among their populations.
As with every stage in the evolution of digital tools, 5G will change how we use technology. With its speed and large-scale deployment, it is expected to expand the market for smart connectivity systems in homes and businesses and lead to greater use of big data, artificial intelligence, and vehicle automation.
Another powerful catalyst is the bipartisan $1.2 trillion infrastructure funding bill recently passed by the US Congress. The provision of broadband via satellite is also on track and promises to expand global Internet coverage to rural and remote areas that are still underserved. This technology will have a transformative impact on local communities, especially in developing countries.
What about inflation and high interest rates?
Potential weakness in bond markets poses a risk to fast-growing technology companies whose long-term discounted cash flows may be more sensitive to higher interest rates. Technology stocks could fall if inflation stays above its long-term trend for a long time. We believe, however, that this will be short-lived due to the strength of major long-term growth trends in areas such as cloud computing, artificial intelligence, automation, and the Internet of Things.
At BNP Paribas Asset Management, we aim to mitigate the effects of higher inflation and higher interest rates by capping position sizes and balancing our positions between fast-growing, higher-priced equities and those of more stable, attractively priced stocks. Relative valuations for tech companies are currently above historical levels, but we believe the sector deserves higher multiples than the broader rating due to better growth prospects and higher return on invested capital (ROIC), as well as excellent growth prospects.
Technology spending and demand for industrial semiconductors, especially in the automotive industry, should remain high. Experts predict that the strong global IT spending environment will moderate but continue at a high level of growth in 2022. Gartner predicts a 5.5% increase in global corporate IT spending in 2022 after 9.5% in 2021 (October 2021, Gartner Inc.). According to surveys of IT professionals, top spending areas include cybersecurity, cloud migration, collaboration tools, and data analytics. These priorities align well with our vision of key long-term growth themes and core technologies.
Our BNP Paribas Disruptive Technology Foundation also offers access to this powerful driving trend of the international stock markets.
Also visit BNP Paribas Asset Management For more information.
BNP Paribas Funds Disruptive Technology is a sub-fund of BNP Paribas Funds, SICAV under Luxembourg law in accordance with Directive 2009/65/EC. This product promotes environmental or social performance in accordance with Article 8 of EU Regulation 2019/2088. This is a product whose goal is not sustainable investment, but which takes into account ESG criteria in the investment process along with financial criteria.
Investments in funds are subject to market fluctuations and the risks inherent in investing in transferable securities. The value of investments and the return on them can either decrease or increase, and investors may not get back the full amount of their investment. The described fund presents the risk of capital loss. For a more complete definition and description of the risks, see the fund and KIID prospectus available at www.bnpparibas-am.fr.
The lack of common or harmonized ESG definitions and labels and sustainability criteria at European level may result in management companies taking different approaches when setting ESG objectives. It also means that it can be difficult to compare strategies that include ESG and sustainability criteria, as the selection and weighting applied to certain investments may be based on metrics that may have the same name but have different meanings. When evaluating safety based on ESG criteria and sustainability, the management company may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may currently be incomplete, inaccurate, or unavailable. The application of responsible business standards, as well as ESG and soundness criteria in the investment process, may result in the exclusion of securities of certain issuers. Therefore, the performance of FCP can sometimes be better or worse than that of UCI, whose strategy is similar. For illustration purposes only. Any changes in economic and market conditions, forecasts or projections are not necessarily indicative of the future or likely performance of the funds.