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Tech stocks that will break free

If you were in the stock market after February’s crash to pick up bargains and didn’t buy into a little business called Zoom, you probably weren’t paying attention. As the preferred application for remote meetings, lectures and video-conferencing, it has become the darling of investors. Its share price had rocketed around 50% by the end of February, more than doubling since the beginning of the year. This at a time when most major stocks had dropped by anything from 20% to 40%.

Zoom may still have more room to move, but that also depends on how quickly other applications and options leap onto that vast learning curve of remote working and meetings. Opportunity clearly lurks there, but lockdown has also unleashed massive demand for home entertainment, learning and social tools.

The companies that play an enabling role in meeting this demand will also thrive. Cloud computing is likely to be a big winner. Amazon, for example, was trading higher at the end of March than its opening price at the start of January, thanks to the central role played by its cloud subsidiary, Amazon Web Services, in hosting much of the world’s entertainment and collaboration.

Microsoft, which has enjoyed a spectacular turnaround under CEO Satya Nadella over the past six years on the back of a cloud-focused strategy, was almost at its 1 January level at the same time. It was the only tech company in the world to retain a market capitalisation of more than US$1-trillion, as the market rewarded the role played by its Teams collaboration platform in keeping businesses productive while employees work remotely.

A lockdown-driven gaming boom will not only benefit creators, but also companies that make gaming more realistic and immediate. One of the big winners is likely to be NVIDIA, leading maker of graphic processing units (GPUs), the chips that power high-end gaming computers. The company has moved beyond GPUs, however, and is creating a gaming ecosystem, including data centres for storing massive volumes of gameplay data. It too, is trading higher than its January 1 level, but only marginally so, suggesting that, unlike its customers, it has serious room for movement.

Sentiment-driven investors will probably avoid the likes of Uber and Match, owner of Tinder, but both  bounced back powerfully from all-time lows as the bargain-hunters moved in.  Clearly, someone else has noticed that stock market crashes are followed by recoveries, and that companies trade at massive discount to their true value in such times.

However, these companies will be the first to be re-punished when the impact of the late-March US stimulus package runs out of steam. The real bargains, as a result, will not be those that have crashed hardest and seem to have the highest recovery potential, but those that have suffered only scratches from the collateral damage of rivals falling out of the sky. A great example is Netflix, which took its first hit only in March and quickly won back lost ground. As the world goes into lockdown, Netflix and its rivals will probably become a source of comfort for both customers and investors.


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