Financial markets rallied last year following the pandemic shock, with the U.S. tech sector boasting annual returns of about 40%. To stay on top of tech opportunities this year, investors are considering key trends in the space.
Stepped-up production of electric vehicles (EVs) tops the list, with a broader range of EVs set to be released, said Jonathan Mzengeza, portfolio manager for technology at CIBC Asset Management, in an interview.
EV sales are expected to grow by more than 50% versus last year, Mzengeza said.
That outlook is based on various factors, including regulatory pressure.
“As a new U.S. administration comes in and they’re really focused on their climate initiatives, that’s going to drive broader rollout of EVs,” Mzengeza said.
Customer demand is also increasing as more people perceive EVs as a way to contribute to the environment, he said. Improvements in EV production and vehicle range will also boost the trend.
To find investing opportunities, Mzengeza suggested looking for companies that provide the tech for EV production. Massachusetts-based Analog Devices, Inc., for example, provides semiconductor components, and California-based Keysight Technologies provides testing equipment.
In other trends, 5G tech is also expected to undergo a broader rollout. The mobile network started to be introduced last year, with South Korea, Japan and China being the greatest beneficiaries.
“In 2021, there should be a broader rollout of 5G to more countries,” particularly the U.S., Mzengeza said.
As a result, phone sales will significantly increase in line with 5G phone availability and consumer demand.
In 2020, only about 36 million 5G phones were sold in the U.S., he said. In 2021, global sales are expected to be 200 million to 600 million.
Another tech opportunity for investors to consider is online advertising, which is gaining a growing share of advertising revenue.
While advertising revenue overall declined in 2020, particularly advertising aimed at traditional TV viewers, Mzengeza expects a reversal.
“We believe that 2021 is going to see an ever more significant increase in advertising revenue, especially for online,” he said.
Companies set to benefit include California-based Trade Desk Inc., a platform for buying digital advertising. The company focuses on “key areas such as connected TV,” Mzengeza said, as streaming services continue to grow.
Post-pandemic tech trends
Another rollout this year has implications for tech stocks — the rollout of Covid-19 vaccines.
If the vaccines are successful at lowering infections, the acceleration in e-commerce growth that began last year will likely ease somewhat.
“We expect a lot of brick-and-mortar retail to return, [as] individuals may become more confident, and it’ll be safer for them to go and buy,” Mzengeza said.
Companies exposed to e-commerce, such as Amazon and Shopify, would be negatively affected after stellar revenue growth in 2020.
“We saw Amazon growth accelerating from 20% in 2019 to over 40% in 2020,” Mzengeza said. “We expect that to decelerate in 2021.”
Shopify went from roughly 50% growth in 2019 to over 100% growth in 2020. The company is expected to decelerate back to its 2019 growth rate, Mzengeza said.
Tech companies that failed to update their processes during Covid-19 to be fully online may find themselves floundering even after the pandemic ends. Examples include legacy software names, such as IBM.
Such companies may suffer in the post-Covid world, Mzengeza said, where services must be provided online and “in a more intuitive and easier-to-roll-out way.”
This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.