(Repeats column published on Friday with no changes)
By Noel Randewich
SAN FRANCISCO, March 3 Technology companies have
been a driving force behind the U.S. stock market's recent
record rally, and despite mounting evidence of stretched
valuations the sector remains a top pick for investors expecting
a wave of capital expenditures by U.S. corporations.
Corporate tax cuts and reduced regulations planned by
President Donald Trump will give companies reason to spend more
on cloud computing, factory automation and smart connectivity
that will directly benefit Silicon Valley, many on Wall Street
"The tax cuts are going to promote business investment
across all industries, and the business investment is largely
going to be in technology," said Doug Cote, chief market
strategist at Voya Investment Management in New York.
Strong performances from big names including Apple Inc
and Facebook Inc have helped make technology the
strongest S&P 500 sector so far this year, surging 10 percent
compared to the broader index's 6 percent rise.
In the past month, investors have poured $325 million into
to the U.S.-listed Technology Select Sector SPDR Fund,
according to ETF.com, which tracks fund flows.
"We may be due for a little bit of a pullback, but we're
still buyers on weakness because we like the longer-term outlook
over the next two to three years," said Terry Sandven, chief
equity strategist at U.S. Bank Wealth Management.
The proliferation of smart, connected devices in homes,
factories and stores is leading to the collection unprecedented
amounts of data and creating demand for more computing power to
Spending on cloud computing will grow by 21.5 percent a year
through 2020, almost seven times as fast as overall IT spending,
according to a recent estimate by market research firm IDC.
PRICIEST OF THE PRICEY
Improved employment and consumer confidence have also been
behind investors' optimism about tech, helping offset concerns
about lofty valuations.
After an eight-year U.S. stock market rally, nearly all
sectors are trading at earnings multiples above their long-term
average, but none more so than technology, according to Thomson
Reuters Datastream. The tech sector's strong performance has
left it trading at 17.9 times expected earnings, compared to its
10-year average of 14.5 times expected earnings.
The S&P tech sector's price-to-earnings multiple has been
above its own long-term average for about a year, and during
that time the sector has surged about 28 percent.
Tech bulls believe earnings momentum is growing for the
sector. S&P 500 tech earnings expanded 12.3 percent in the
fourth quarter, more than any other sector, according to Thomson
Reuters data. Analysts on average expect 13.6 percent growth for
the March quarter.
Recent upbeat quarterly reports and commentary from Broadcom
Ltd, Skyworks Solutions Inc and Applied
Materials Inc suggest semiconductors are poised for
strong growth, said Wedbush trader Joel Kulina.
Micron Technology Inc jumped 3.5 percent on Friday
after raising its 2017 forecast the day before, helped by
healthy demand for its memory chips.
"I can't remember a time when we've seen this much
excitement," Kulina said. "Semiconductors aren't as cyclical as
they used to be, where quarters were driven by PC demand. Now
it's automotive, it's data center, industrial automation."
(Reporting by Noel Randewich; Editing by Richard Chang)