The rising momentum of technology stocks year after year is difficult to sustain: or the future growth rate has been overdrawn

According to reports, less than 4 years ago, when the market value of Apple's stock exceeded $1 trillion, the high point of technology stocks seemed to have arrived. At that point in time, who would have thought that this company that redefines consumer technology could be close to the $3 trillion market value by the end of 2021.

This period will surely be recorded in the history of technology investment: with the support of an exceptionally favorable financial environment, a market with strong long-term growth has ushered in a climax due to an epidemic.

But the gains in 2021 are uneven. Some sectors (such as e-commerce) began to cool after a smash hit in 2020, and some technology stars (such as Zoom and Peloton) that had skyrocketed in the early stages of the epidemic suffered heavy losses. But from an overall point of view, growth is still the main tone of the entire market, and the growth of the giants is particularly prominent.

But whether it can continue this upward trend in 2022 is another question. In the long run, digital technology will continue to play an increasingly important role in economic life, and regulators have not taken any measures to stifle the most powerful technology platforms. However, the east wind that promoted the last round of development of the technology industry has been fading, and many unfavorable trends make the form of next year more difficult to predict.

Twelve months ago, the five major technology giants (Apple, Microsoft, Google, Amazon and Facebook) looked forward to this year and expected their total revenue to grow by 13%. A similar situation will occur in 2022. But the actual situation in 2021 is much better than forecast: when the final data is released next month , the total annual revenue of these five technology giants is expected to reach 27%. The recovery of digital advertising, the demand for emerging technology products, and the substantial increase in cloud computing and other digital service expenditures are far better than forecasts.

Such a strong performance has boosted the stock price of the tech giants. The total market value of these five companies this year increased by 2.7 billion US dollars, an increase of 36%. Although it is not as good as the 55% rebound brought by the epidemic last year, it is still ahead of the 30% increase of the S&P 500 .

In the face of a more challenging market situation and financial environment, it is difficult for such revenue and market value growth trends to continue. Low inflation and the accompanying moderate monetary policy have brought good news to the technology industry. On the one hand, this has injected a lot of capital into the market and pushed up valuations; on the other hand, it has also depressed bond yields and lowered the discount rate used to evaluate future profit flows. As interest rates rise, the valuation of growth companies will inevitably be impacted. After all, their best year has not yet arrived.

The question now is: How much of the future situation has been reflected in the current market? Expected interest rate hikes caused high-growth software stocks to fall by a quarter after early November, and then recovered some of their losses in the second half of December.

With the increase in the year-on-year base, many areas of the technology industry will also face the challenge of slowing growth. Last year's e-commerce boom caused U.S. online shopping sales to surge 38% in the last quarter . In contrast, this year's growth may only barely reach double digits.

At the same time, the underlying needs are becoming more and more difficult to assess. How much has the consumer's digital behavior changed? If the epidemic eases, to what extent will they return to their original work and entertainment methods?

Companies that increase digital spending seem unlikely to go back in time. But if they invest in technology expenditures in advance to weather the crisis, they will eat into future expenditures. Companies have experienced significant changes in their work processes during the epidemic, and they may think that they are incapable of being able to cope with too many changes at the same time, thus slowing down the pace of digital transformation.

Nevertheless, the long-term fundamental trend seems to remain strong: the epidemic has made companies realize that they must improve business flexibility through reforms, cloud computing is just beginning to penetrate old IT processes, and e-commerce accounts for only about 15% of total US retail sales. .

This leaves plenty of room for long-term growth. However, after the recent sharp rise, coupled with the increasingly unpredictable future prospects, the probability of another bumper year for technology stocks is getting lower and lower.