Riding the global tech wave

Will Danoff just celebrated his 20th year managing Fidelity’s go-anywhere Contrafund^®—Fidelity’s largest equity fund, with $62 billion in assets. His thoughts:

I think technology is one way to benefit from businesses spending more, and I think that's where you may see more growth over time. Businesses have a lot of cash on their balance sheets. They may buy other companies, but I think they're definitely going to buy more technology. It’s been 10 years since we’ve had a technology cycle, so the potential for upside is there.

Smartphones represent an exciting trend. Just three years after being invented, more than 300 million smartphones are expected to sell this year: that's about the same number as personal computers. And the mobile Internet is experiencing faster adoption rates than conventional desktop Internet. The implications of that are potentially extremely powerful.

From social networking to location-based services, cell phones are helping to power all kinds of innovative businesses in communications and commerce. And on the back end, that’s creating demand for semiconductors and telecommunications networking gear. The bottom line: smart phones are big.

Another powerful theme within tech is cloud computing. The growth of cloud computing has resulted in the consolidation of data centers and the delivery of software applications over the Internet. It makes sense for certain services that consumers and businesses use every day to be centralized. A perfect example is e-mail—companies are eschewing in-house applications such as Outlook for Web-based services such as Gmail, which reduces a company’s need for data storage. Companies are realizing that it no longer makes economic sense to build and maintain their own gigantic data centers, and so they’re migrating their noncritical data into the “cloud”—and they are willing to pay for that service.

Technology is also interesting because, for the most part, technology companies are able to sell their wares all over the world and thus are benefiting from the fast growth in most of Asia and Latin America. Additionally, many of these tech companies have outsourced manufacturing overseas, and now they're generating lots of free cash flow.

https://guidance.fidelity.com/viewpoints/5-experts-september-2010