We expect the technology sector to return to a more normal environment after most of the world population gets vaccinated, as the macroeconomic environment gradually recovers, and capital markets normalize. The impact of the pandemic on the supply chain and end-market demand should ease and capital market access should normalize after a very favourable 2020.
We must also point out that the U.S. big tech did very well from Trump’s tax cuts even before the pandemic moved most of the economy online. However, in 2021 the tech giants are expected to face huge challenges coming from the courts. Alphabet, Google’s parent, is now fighting an anti-trust lawsuit brought by the Department of Justice which accuses the company of abusing its dominance in search and advertising markets to maintain an illegal monopoly.
The Federal Trade Commission is also weighing an antitrust suit against Facebook. Across the globe, China has also launched an antitrust investigation into Alibaba as the government prepares to step up its scrutiny towards tech companies.
Europe’s exposure to tech is smaller compared to the previous mentioned regions, but it is undeniable that, like the signs that we saw in November, there is going to be a market rotation away from technology and towards cyclical value stocks.
On the other side, it is expected that the overall technology hardware spending grows in 2021 driven by data centre capacity expansion, 5G buildout, and increasing electronics content in automotive and industrial applications. Everyone is predicting a significant investment in every kind of sustainable technologies, systems and infrastructure. Tech companies will have a key role in delivering smart solutions to contribute to a post-fossil fuel society, especially with a higher number of investors that look to put their money in high rated ESG firms.
Software is expected to return to normal industry growth in 2021 after weaker than anticipated growth in 2020 due to the coronavirus pandemic. Also, reduced PC demand in 2021 is expected resulting from robust pull-forward demand in 2020. Public cloud on the other hand is expected to continue its strong growth in support of a rapidly changing workforce that has become more decentralized.
This article is in our Market Outlook 2021
Alexandre Silva, MSc in Finance
Gabriel Gonçalves, BSc in Economics