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