According to Alison Porter, portfolio manager with Henderson’s Global Technology Team, Apple, Alphabet (previously Google) and Amazon are three three key holdings “in a 'winner takes most' world."
Following the release of the companies’ latest quarterly earnings results, Porter states that after the first quarter for Google as Alphabet, the company offers exposure to a number of powerful internet themes, including online video, programmatic advertising, paperless payments, mobile internet and several ‘other bets’ that could drive significant value in the future, including Nest (smart home appliances), its leading position in self-driving cars, Calico (life sciences) and Google Ventures (venture capital arm, which includes stakes in companies such as Uber). “In our view, the strength of Google’s position in mobile is underappreciated… We think investors will place a value on the company’s other ventures despite them currently being loss makers, and also award the core Google business a higher valuation.”
In regards to Apple, one of their main holdings, Henderson considers that the company “is currently valued as a ‘one product cyclical company’, which we believe undervalues the Apple eco-system.” Henderson expects sales growth of the iPhone 6 to slow from 28% in 2015 to around 6% in 2016. Nevertheless, they trust Apple will be able to take advantage of new markets.
When it comes to Amazon, better tan expected revenue and operating profit guidance consolidate Amazon’s dominance in its core businesses of ecommerce and cloud services − which are both large and rapidly growing markets where Amazon still has low market share. Henderson highlights Amazon Prime as an área of opportunity along with Amazon Web Services (AWS) is taking market share from traditional hardware companies such as IBM and EMC but now also increasingly from software companies such as Oracle.
“Technology tends to be a sector where the winner takes most market share and companies with the strongest barriers to entry such as Apple, Alphabet and Amazon are the most likely to benefit. The team is confident these three companies are well positioned in a low growth environment to grow profitably and reward investors.” concludes Porter.
You can read the full report in the following link.