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The technology industry is known for constant change. Leaders sputter, while upstarts seize the spotlight. Thankfully, the dynamism of new winners and losers make perfect fodder for a column named Tech Trader.
This past decade was no different. There were amazing stories of reinvention such as
Microsoft’s
(ticker: MSFT) successful pivot from the legacy software model to cloud computing and subscriptions. Apple’s and Google’s smartphone ecosystems were the growth rails for a new array of mobile internet innovations like
Uber Technologies
(UBER) and Instagram, owned by
Facebook
(FB).
Amazon.com
(AMZN), meanwhile, continued its inexorable rise, extending its tentacles into logistics and advertising, as well as furthering its lead in the cloud.
This year also brought many twists and turns. This column covered many major developments—from chip wars to trade wars, from streaming to gaming. We also discussed how an open-source software called Kubernetes is shaping up to be the next big wave in computing, accelerating the transition away from legacy client-server technology to cloud-native technology solutions.
The biggest story of 2019 was that Big Tech came under antitrust scrutiny. The competitive practices of
Apple
(AAPL), Amazon, Facebook, and Google’s parent
Alphabet
(GOOGL) are being investigated by regulators. Some critics, including Democratic presidential candidate Sen. Elizabeth Warren, have even called for their breakup. In June, when stock prices of the tech giants swooned over fears that the government could take action against them, Barron’s suggested that investor angst may be overblown. That turned out to be the right call.
We made company-specific calls, too, some good and some bad.
Advanced Micro Devices’ stock (AMD) stunning triple-digit bull run may have been the biggest surprise to Wall Street. Last month, AMD became the top-performing stock in the S&P 500. Since then, it has only extended its lead against other members of the benchmark index. The stock has risen nearly 139% year-to-date.
For Barron’s readers, however, the rise of the chip maker was no surprise. We have repeatedly covered AMD’s bright prospects in this column on several occasions. Late last year, we wrote how the company could be a big winner for 2019 because of its promising lineup of seven-nanometer (nm) chips. Smaller-nm manufacturing processes have historically allowed semiconductor companies to create faster, more power-efficient chips.
The optimism turned prescient as the chip maker successfully introduced its new family of seven-nm processors in July and quickly gained traction in the marketplace, receiving stellar reviews for its price and performance compared with
Intel’s
(INTC) offering.
Bullishness on videogame stocks was a recurring theme. This large growth industry, which generates nearly $150 billion in global sales annually, gets strangely short thrift from many investors and the media.
Not here. We were able to call out attractive entry points for
Nintendo
(NTDOY),
Take-Two Interactive Software
(TTWO), and
Activision Blizzard
(ATVI) before sharp double-digit percentage gains.
Not all of our calls worked out, however. In April, we were skeptical over Zoom Video Communications’ (ZM) stratospheric valuation. At the time, its stock had soared more than 80% from its offering price the week before. Zoom proceeded to rally more than 50% six weeks later, though it has lost much of those gains in recent months.
This column turned pessimistic too early on Apple shares. While Barron’s suggested that investors buy the smartphone maker’s stock right near its low for the year in January, we incorrectly said profit-taking was in order a few months later after a 30% rally. Apple rose more than 40% further.
Our coverage wasn’t all about investing ideas. We fought for pro-consumer practices that affect all technology users. Earlier this year, we called out
AT&T
(T) for its confusing national marketing campaign promoting its “5GE” service, which had nothing to do with actual fifth-generation technology.
In April, we were critical over the gaming industry’s use of random chance “loot boxes” for digital items, which some experts likened to lottery-like gambling.
After increased scrutiny from both the media and politicians, the Entertainment Software Association announced in August that the major game publishers had agreed to increase transparency and disclose loot-box odds for its games by the end of 2020.
So how did our 2019 tech stock picks fare?
Last December, we unveiled our four best stock ideas for this year—AMD, Alphabet,
PayPal
(PYPL), and
Grubhub
(GRUB). The share prices were up 122%, 29%, 27%, and down 38%, respectively, since then. As discussed, AMD thrived on its new chips, while Alphabet and PayPal both reported strong financial results through the year.
Grubhub was the one loser in the basket. The company slashed its profit guidance in October and said it would match its competitors’ discounting, leading to a plunge in its stock price.
Frankly, we didn’t foresee the intense promotional environment and the money-losing business practices from its privately funded competitors.
Even with Grubhub’s poor return, the picks outperformed the major indexes. On average, the 2019 ideas have returned 35% since the Dec. 14 column, ahead of the S&P 500 at 26% (including dividends) and the Nasdaq Composite’s 30% (including dividends) over the same period.
Stay tuned next week for 2020 top picks. Hopefully we’ll have more AMDs on our new list and fewer Grubhubs.
Write to Tae Kim at [email protected]
