How we navigate the Technology sector, identifying companies with durable, growing earnings and avoiding the lofty valuations of "story stocks"
Transcript
| Chris Davis: | Technology is always a seductive part of the market because you have enormous growth rates uh, that that our manifested fortunes have been made and people always are interested and focused on this fast-changing sector. Now we've been investing in technology for five decades and what we've learned are two powerful lessons. The first is it's an industry where you need to be very careful about durability. Companies that are market darlings and perceived as bulletproof can literally be zeros that are irrelevant a decade later. So you really need to understand the durability of the underlying business. And the second thing is, when there's enormous optimism about a company or a sub-sector of the technology industry, you can get very high valuations, right? High valuations with business models that might not be durable is a very, very dangerous combination. And we've seen many fortunes wiped out by paying too high a price for a growth rate that was not sustainable or a market position that wasn't sustainable. So those are the risks, but we know the opportunities. Technology is such an enormous value add in growing part of the economy. So I'd like Danton maybe to take us through some of the specific opportunities that we're finding within the technology sector. | |
| Danton Goei: | Sure. And one way we ensure the durability and resilience of our companies is really focusing on proven business models, our market leaders with experienced management teams. That is really the focus. Those companies can be adaptable. They can, you know, change to when the world changes and technology changes. But they already are established players with strong balance sheets and generating a lot of cash that enables them to change. We're in a number of different areas in technology, in social media, in semiconductors, in search. Quite a varied group of companies, e-commerce is another area that we're in. And if you look at our holdings, we own large holdings in Meta, Amazon, Google, Applied Materials, and Texas Instruments that are on semis. So it's quite a varied group of companies. You know, Meta is an interesting name that we hold where it is an established business. And it's in fact been one of the companies we believe that has benefited the most from this change in AI. These improvements in AI have really had a positive impact on their business. So one, they have an established business with a huge presence, over 3 billion daily users across the globe, amazing statistic given that we're, you know, only 7 plus billion in the world. | |
| And if you think about their business and the particulars of their business, it used to be that 100% of their content was recommended from friends and family. That's what kind of made a meta on Facebook or Instagram special. Today, because of the advancements in AI, over 30% of content of posts on Facebook are from AI. And that is just doubled over the last couple of years. That's an amazing ability to adapt and take in technological change and Instagram over 50% of content is today AI recommended. | ||
| So that you can see where this large company is really kind of leaning into it and taking advantage of the change that are happening to benefit their large user base. |
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