It’s been a bad year for tech companies, as investors flee growth stocks in the face of rising interest rates and other headwinds. Growth stocks, such as Big Tech, were an investor favorite in an era of low rates. But this year, tech has been among the worst-performing sectors. The Nasdaq is down 33% year to date. Many investors have been wondering: When in 2023 will the turning point be? That would depend on the “data points that come through” when companies report fourth-quarter earnings in the February to March period, tech fund manager Jeremy Gleeson of AXA Investment Managers told CNBC Pro Talks last week. How well they will do in their first quarter will also only be known later in the year — closer to summer, Gleeson said last week. In summary, it’s going to take a couple of quarters to see where the sector is going, according to Gleeson, who manages the £1.1 billion ($1.3 billion) AXA Framlington Global Technology Fund. “So it’s going to take a couple of reporting cycles to really see where these companies are positioned in terms of where they set expectations, and wherever they can sort of get back into ideally a sort of a beat and raise mode,” he told CNBC Pro Talks. “And so we need that reset to take place and we need confidence to see that companies are resetting off,” he added. Nevertheless, Gleeson said tech stocks are “down but by no means out.” “We believe that the long-term trends that are driving growth in the sector remain in place. Technology is driving change across the whole economy, and businesses, customers and governments are open to change, adopting new technologies faster than at any time in history ,” he said. Some themes include productivity-enabling tech, and Web2 tech. Earnings is a key metric in the tech sector, he said, adding that he prefers firms with strong balance sheets. Companies in the AXA Framlington Global Technology Fund, which beat the market benchmark in the third quarter to return 3.5%, are showing earnings trends that are significantly ahead of the market, according to Gleeson. What to buy Investors can consider two enterprise software giants, which are set to benefit from a recession in 2023, Gleeson said. They are ServiceNow and Salesforce, which may benefit from companies looking to cut costs during a recession by automating parts of their operations, he said. Gleeson also likes the cybersecurity sector, where he highlighted some firms are starting to deploy artificial intelligence to identify issues before they develop. “In a challenging economic environment, the bad guys are not going to let up doing the things that they do to try to steal information, data, intellectual property, or just cause malicious behavior to cause disruption to businesses, operating environments, so cybersecurity is going to be really important,” he said. He named Palo Alto Networks, CyberArk and Darktrace as some names that he likes.
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