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Opportunities in the tech sector extend beyond the Magnificent Seven, says Jyotsana Wadera, senior investment director, equities with Putnam Investments.

Wadera said while Meta, Microsoft, Nvidia, Apple, Alphabet, Amazon, and Tesla have reaped extraordinary returns from the nascent field of generative artificial intelligence, they are not the only news in tech.

“There’s a lot more happening than just the AI area of technology,” she said. “Think about secular growth trends such as electric vehicles, the Internet of Things, healthcare technology and machine learning. Think about cybersecurity and the like. There’s a lot of exciting initiatives happening through technology.”

And tech indexes attest to this, she said.

“There’s a lot of talk in the media that’s been led by the Magnificent Seven. But even ex the Magnificent Seven, the S&P 500 benchmark returned close to 14%,” she said. “If you looked at the growth universe that was up 42% last year, ex-Magnificent Seven, they had a return of 26%.”

Wadera said these kinds of returns are not a flash in the pan. Continued robust investment in the technology sector makes sense, given the sector’s importance to a wide array of affiliated fields.

“Technology is a sector that has domino and trickle-down effect to be a tailwind to a lot of other industries, such as industrials, consumer discretionary and cashless payments,” she said. “So if you ask me to bet where growth in the marketplace will be five years from now, whether I’d bet on areas such as energy or financials or healthcare or technology, I’m going to pick technology.”

She pointed to autonomous and electric vehicles as a growth area that could prove lucrative to a number of companies, including computer chip makers and tech companies like Calif.-based Cadence Design Systems and Palo Alto Networks.

“Electric vehicle penetration right now is just under 3% of new car sales today and they’re really only in the testing phase,” she said. “It could be 4% this year, or 5%, or 6%. That’s a huge tailwind.”

Cadence Design Systems is a big player in the field of electronic design automation, producing hardware, software and silicon to facilitate chip manufacturing.

“Semiconductor companies make cuts and then they accelerate production. But the one area that they do not trim from is research, development and design,” she said. “Because you need to have the faster chip. You need to have the better chip. You need to have the chip that can store more data.”

She said Cadence Design Systems has grown ahead of consensus even during difficult years for technology like 2022.

“Cadence Design is an enabler to electric vehicles. And so we’re very happy to own the enablers,” she said

As for AI itself, she said some companies like Microsoft Corp., Adobe Inc., Salesforce Inc. and the global semiconductor chip manufacturers are investing aggressively to go beyond the “first-derivative beneficiaries” of generative AI.

“The hyper-scalers are going to be the real beneficiaries over the next 12 to 18 months. And that is where I think the potential is probably underestimated,” she said. “Obviously, they have to put a lot of money into the infrastructure but what we recently saw is that that investment has actually paid off.”

Wadera acknowledged that some question marks linger above the technology, among them data privacy, intellectual property rights, and the accuracy of data coming out of AI.

“Also, we can’t underestimate the potential for regulation in this industry,” she said. “We expect that standards and regulations will emerge, which will help mitigate some of these risks. But they could be disruptive to the trajectory of some companies.”

Nevertheless, her enthusiasm for the potential of AI is not dampened.

“Outside of the dawn of the internet era, this is going to be a very exciting technology that’s going to impact all facets and industries,” she said.

Investors need to stay invested to reap the rewards of such a fast-moving industry, she stressed. The strategy of moving in and out of companies could hurt them in the long run.

“You have to be present to win, right? If you aren’t there for the ride the whole time, you can absolutely miss out,” she said.

“Areas of technology can be crowded for sure. But I think there’s amazing opportunities and exciting opportunities. These are trends that we think are long term, they’re here to stay, and more importantly that they’re durable.”


This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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