Macro Research Digital Economy: Long-term growth intact, bu | FSMOne SG - Research Highlights

Macro Research

Digital Economy: Long-term growth intact, but limited upside

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• US big-tech stocks continued their fine performance in 2021, as companies continued to beat earnings estimates, pushing valuations to a record high. However, the strong earnings growth seen over the past year may be difficult to sustain in the coming quarters.

• Lofty valuations, a potential slowdown in earnings growth, rising interest rates, and regulatory risks are factors that may limit the upside of internet companies in the near term. Therefore, we hold the digital economy at a rating of 2.5 Stars “Neutral”.

• Segments exposed to corporate demand (cloud, digital advertising, cybersecurity) have done better compared to those exposed to consumer demand. This trend is expected to continue as businesses speed up their digital transformation efforts.

• Long-term, there are massive digital transformation opportunities for traditional industries. Recent catalysts, such as Covid-19, labour shortages in the US, as well as supply chain disruptions, will help to accelerate the shift.

• The O'Shares Global Internet Giants ETF (BATS:OGIG) is trading at 44X 2023 earnings, suggesting that it is more or less fairly valued based on the fair PE multiple of 45X we have assigned for this sector. At 45X PE, the target price is USD 43.

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: O’Shares Global Internet Giant (BATS: OGIG)