Many stock investors feared last year that companies with a disruptive impact on technology would continue to underperform, due to higher interest rates and a weaker macroeconomic backdrop. This uncertainty created a unique entry point for investors into some of the most interesting parts of the innovative tech ecosystem, particularly in software and semiconductors.
Multiples for smaller tech stocks also were under pressure as the 10-year U.S. Treasury bond rate BX:TMUBMUSD10Y moved from 1.6% at the start of 2022 to 3.9% at the end of 2023. Yet in 2024, the growth rate for worldwide IT spending could more than double. As the end of the Fed’s rate-hiking cycle nears, pressure on multiples should abate.
Pipelines are building for multiple companies across industries and applications, including next-generation data storage, cybersecurity and software-development tools. Bolstered by the improving spending environment and easing rate backdrop, the beneficiaries of AI can be expected to broaden beyond the Magnificent Seven. Innovation is accelerating rapidly, and companies are developing fresh solutions, products and applications that could accelerate growth.
Opportunities to invest in companies that could participate in a tech leadership change are varied. Tech stocks that we own in some of our Goldman Sachs Asset Management portfolios that could benefit from these growth trends in 2024 include: