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Quarter-End Insights

Tech and Telecom: Still Watching Foreign Exchange Headwinds and the Cloud

There are a few more options with the sector now slightly undervalued, but given recent market volatility, we favor firms with established economic moats.

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  • Foreign exchange headwinds persist and are likely to have an impact in 2016, but we haven't seen it affect the tech spending environment all that much. The sector looks 3% undervalued, and we'd be selective.
  • We think a near-term cyclical peak in analog semiconductors has arrived, and downturns tend to provide long-term, patient investors with buying opportunities.
  • Cloud remains in focus and the market is growing, but not all players will benefit equally; improving sales and marketing efficiency will drive significant operating leverage at many software-as-a-service firms.
  • A new European Union antitrust chief is taking a harder stance as consolidation slows.

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Peter Wahlstrom has a position in the following securities mentioned above: MSFT. Find out about Morningstar’s editorial policies.