Five Big Tech Themes For 2023

Five Big Tech Themes For 2023
Paul Allison, CFA

11 months ago4 mins

  • With all the uncertainty in the market, thematic investing is back en vogue. And that has tech looking particularly fashionable: no sector does a theme better.

  • Our lives are moving increasingly online. Social media and ecommerce are gearing up for a battle royale. And big things are happening in small videos..

  • Giant clouds are on the horizon, and web 3.0 may be getting a little bit closer.

With all the uncertainty in the market, thematic investing is back en vogue. And that has tech looking particularly fashionable: no sector does a theme better.

Our lives are moving increasingly online. Social media and ecommerce are gearing up for a battle royale. And big things are happening in small videos..

Giant clouds are on the horizon, and web 3.0 may be getting a little bit closer.

When markets are uncertain (as they are right now), thematic investing tends to come into sharp focus. The investing style cuts through the volatility and the noise, honing in on the biggest trends and the companies that are best positioned to benefit from them. And there’s no better place to look for trends than tech. Investment bank Goldman Sachs recently called out ten themes in online and interactive technologies. Here are the ones you’ll want to watch…

1. We’ll do even more stuff online.

Online penetration in things like shopping and advertising jumped during the pandemic-driven lockdown era. But now that the dust’s settled, the debate’s shifted to whether those gains will reverse back to pre-pandemic levels, or whether online’s share can continue to creep higher. Goldman’s leaning toward the second view. Take ecommerce, for example. Online penetration of core US retail sales leapt from 20% to 27% by the end of 2020, and Goldman expects that it will continue to grow in the coming years, at roughly its pre-pandemic pace. That should be good for firms that do business online.

Source: Goldman Sachs.
Source: Goldman Sachs.

2. Social media and ecommerce will battle for turf.

For platform giants looking to diversify their revenue dollars from advertising to retail, social commerce has been the focus – but it’s been a dud so far. And that probably won’t change until the upcoming period of weak economic activity has passed. But after that, the best-positioned firms, according to the bank, will be Pinterest, Meta, and Google parent Alphabet – through its shopping initiatives at YouTube.

On the flip side, ecommerce giants continue to up their ad game. Amazon’s ad business has rapidly become one of its most important. Goldman is also expecting non-traditional players to expand into ads too, like Uber and DoorDash.

Source: Goldman Sachs.
Source: Goldman Sachs.

3. Small videos and influencers are going to be big.

TikTok’s given us an insatiable thirst for short-form video clips. And as rivals have followed its lead, the share of time captured by this content has exploded. The problem for the platforms, though, is it’s tough to make money from short-form videos. We’re just less engaged with a five-second TikTok clip than we are with an Instagram story or a documentary, for example. Google’s YouTube has felt the brunt of this trend, even though it gets 30 billion daily views of YouTube shorts. This will be the year to try to convert those views into dollars.

TikTok’s also cast a perfect ring light on fame-hungry influencers. And, love ‘em or hate ‘em, they’re attracting more of our eyeballs, and this has given rise to an entirely new ecosystem of entrepreneurs and businesses who enter into contracts with platform firms and share the bacon. And since this form of content is probably here to stay, social media firms will likely beef up their funding and revenue-sharing agreements. This might be a big deal for the wannabe stars, but it's not about to move the dial for the big platform firms. Take a look at the chart below. Goldman’s forecasting a near doubling of combined influencer marketing spend between 2021 and 2024, but that will still amount to only around $7 billion. Overall: a cheap way for platforms to pull people into their orbits.

Source: Goldman Sachs.
Source: Goldman Sachs.

4. Huge clouds will be on the horizon.

This is a biggie. Amazon’s AWS and Microsoft’s Azure cloud services have been delivering stunning growth to those firms. Arguably, what happens to these businesses will dictate what happens to the stock prices of these firms. Goldman thinks IT spending thriftiness will drive a hefty downturn next year. By its best guess, cloud spending growth will slow to between 4% and 22% in 2023. Now, that’s a range you can drive a bus through, but the big takeaway is that even the most generous estimate is still a fair bit slower than the 30%-plus growth these firms have been getting (40%-plus in Azure’s case). But Goldman’s still optimistic about the long term. Most of the big cloud players have been winning increasingly large contracts, which means that there’s a load of revenue to come in the future when those projects get implemented.

Source: Goldman Sachs.
Source: Goldman Sachs.

5. Web 3.0 will change everything.

This could be on theme lists every year for the next ten years. No one really knows when virtual reality, augmented reality, or artificial intelligence will become part of our everyday lives, but we all seem to agree they’re the next big things. Goldman expects gaming to be out in front on virtual and augmented reality, and expects Activision, Electronic Arts, and Take-Two to be among the early top scorers.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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