2 Key Trends Driving the Tech Sector Forward
As the economy roars back to life after the pandemic, technology companies are pushing ahead with innovations that will continue to shape the future of work. For investors, identifying these innovations and sector-shifting developments are key – they will determine where earnings and revenues will accelerate for quarters and years to come.
In this Investor’s Advantage, we take a look at two key trends driving the tech sector forward.
Trend #1: Computers Shifting to Becoming More Like Phones
Throughout the pandemic, sales of personal computers (PCs) rose by 50% or more each quarter, as workers set up home offices and as families acquired computers for remote learning. Analysts predict even more PCs will be sold as the hybrid work model (discussed below) takes hold, and as home education becomes more commonplace. Experts also believe people will start buying PCs in shorter time frames, perhaps 4-5 years instead of 6-7. The renewed enthusiasm for PCs reversed a decade of declining sales, and now laptop makers are back in innovation and feature-boosting mode.1
One of the biggest shifts in the realm of PCs: having our laptops incorporate more of the technologies that make smartphones so ubiquitous. Among the changes are longer battery life, sharper displays, decreasing thickness and weight, and detachable keyboards (which make computers more transportable).
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Perhaps most importantly, however, is an innovation that many may think is long overdue – having our laptops be able to connect to cellular networks as our phones do. If you’ve ever wondered why our phones can stay connected to the internet wherever we go, but that our computers need a coffee shop or a Wi-Fi hotspot to connect to the internet, you’re not alone.
For years, laptop makers have been able to get LTE and 5G modems onto PCs. That’s not the problem. This issue is that cellular providers like Verizon, AT&T, and T-Mobile have not devised an efficient way for it to work. If every PC owner could connect to the internet via their cellular LTE or 5G network, the telecom companies fear the networks would be overloaded by streaming, gaming, and downloads – activities that are not done as frequently on phones.
5G may change the existing environment, allowing telecoms to sell more data plans that could make connecting to the internet on a laptop far easier.
Chipmakers stand to benefit from the revival of the laptop market. Intel is one of the biggest players in chips and processors, with its main rival being AMD. More recently, however, Apple has stepped away from Intel and started making its own M1 chips, which it plans to continue developing over time.
Theme #2: Hybrid Work and Collaboration Tools
Another legacy of the pandemic will be a new normal of “hybrid work.” Companies are still figuring out how they want hybrid work to look, but the consensus seems to be shifting towards 3-4 days a week in the office and 1-2 days working remotely, from home or elsewhere.
The implications of hybrid work are many. We alluded to rising PC sales as a by-product of increasing remote work – according to estimates from IT research and consulting firm, Gartner, 1.1 billion people worked remotely over the last year, up from 350 million in 2019. Those numbers are not likely to correct back down to pre-pandemic levels, meaning strong sales in PCs could be sticky.3
Another key technology trend we’re seeing – and will likely continue to see – is the rise in collaboration software and other types of software that promote remote work. According to Gartner, spending in the global collaboration and enterprise social software market is estimated to hit $4.5 billion in 2021, which would mark a 17% increase over 2020 levels. Double-digit growth is also expected in 2022.
Bottom Line for Investors
These two trends in the technology sector are already having a macroeconomic impact in the United States. Nonresidential private fixed investment, which is a proxy for business investment in capital, equipment, and other productivity tools, has seen a strong bounce off pandemic lows. As you can see from the chart below, business investment is now above pre-pandemic levels and at all-time highs.
Business Investment Has Been Robust
Much of this spending has been focused on building out technology infrastructure for hybrid work. In the aftermath of the 2008-2009 Financial Crisis, labor was cheap, and companies spent more on hiring than they did investment. In 2021, the labor market is tighter, and the business landscape is arguably forever changed. These could prove major headwinds for the technology trends described above.
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