Credit Suisse, the Swiss investment banking company, believes that technology stocks remain the best investing option but has advised customers to invest in tech with greater caution.
Fundamental analysis: Moderately expensive sector
The bank is concerned with the ‘dot-com-era bubble’ taking shape in the market due to increased congestion in leading tech stocks. A downfall of these mega-cap stocks in early September eased concerns about overvaluation, but high share prices prompted Credit Suisse to conduct analysis whether its clients can still trust the sector or stay away.
The Swiss bank analyzed several key metrics to ascertain the scope of indulgence in technology stocks. Tech investment as a share of gross domestic product is close to its average, as well as the share of non-residential investment.
The analysis also showed that the capital-expenditures-to-sales ratio in tech is nowhere near extended levels and is probably boosted by expected demand for 5G devices and autonomous-driving upgrades.
Credit Suisse pointed out that technology stocks are only moderately expensive when it comes to free-cash-flow yield compared with the rest of the market. Demand for technology produced similar indications, as its sales are matching their historical trend, compared to the dot-com bubble’s 12% overreach.
The bank also said speculation is higher in some areas of the sector but not near its extreme levels. Credit Suisse said “excess in tech is high” but not like it has been in the late 1990s.
However, the bank advised clients to invest more cautiously. Credit Suisse analysts cut the overweight rating for tech stocks, due to increased market congestion and elevated regulatory risks in case Biden wins the presidential election.
Furthermore, the emergence of a proven Covid-19 vaccine could prompt a “short-term reversal in some of the online trends” that boosted tech during the pandemic, the bank added.
2 German tech stock to buy in November
SAP SE (ETR: SAP) is the largest software company in Europe and one of the world’s largest listed software companies. The global software industry is expected to rise at a CAGR of over 10% until 2025.
SAP stock price is 10.7% up year-to-end with a fresh all-time high created in the last week of September. A correction has taken place since this move higher to push SAP share price to a buy zone near the 130.00 mark. Target on the upside for the buyers is 158.00, signalling a potential upside of around 20%.
Infineon Technologies AG (ETR: IFX), one of the ten largest semiconductor manufacturers in the world. It’s exposure to the emerging 5G industry is one of the key reasons behind the company’s popularity among the investors community.
Analysts at Barclays rate IFX as “Equal-weight”, while J.P. Morgan analysts upgraded the stock to “Buy” in June. Infineon printed a new all-time high this week to reflect a strong performance on the business front. Any pullback to 25.70 should be seen as an opportunity to get on the long side to target 30.00.
Credit Suisse analysts said the tech sector remains the best investing choice, however, the bank advised customers to take some money off the table. SAP and Infineon are two German tech stocks that are likely to continue moving forward in the last quarter of the year.