Following a 2021 that saw incredible amounts of excess in parts of the tech sector, 2022 might end up being a hangover period for certain companies and assets.
But with many of the secular growth trends that have driven tremendous sales and earnings growth still going strong, and with many tech stocks having either come back to Earth or not really been caught up in the excesses to begin with, it's not all doom-and-gloom for tech heading into the new year.
Without further ado, here are eight fairly realistic tech predictions (in the eyes of yours truly) for 2022. Eight more will be shared soon.
1. Inflation, the Fed and Reopenings Keep Having a Big Impact on Many Tech Stocks
The last two months of 2021 saw worries about inflation and a tightening Fed finally take a toll on many tech stocks that had been bid up to nosebleed valuations. Along the way, some companies that weren't as expensive but which lacked near-term profits also got hit, as many investors became more risk-averse about long-duration stocks in general.
Nonetheless, considering how high some valuations still are, as well as how low Treasury yields generally remain and how many sell-side forecasts call for fairly tame second-half inflation, I think the market's inflation reckoning is far from over. Soaring home prices/rents, cash-flush corporate balance sheets, an ultra-tight labor market, the fact that consumer services spending is still well below its pre-Covid trend line and the way in which greater inflation expectations are now feeding on themselves are all reasons to think inflation could keep running hot for much or all of 2022, even if (as is likely) supply-chain issues ease. And if it does, certain tech stocks are bound to feel a significant impact.
Meanwhile, with spending on travel, dining and local events still soundly below 2019 levels in many places, and with a lot of evidence now suggesting the Omicron variant is much less likely to cause severe illness than the Delta variant, look for the effects of normalizing consumer behavior to provide a lift to various reopening plays and (with the caveat that many pandemic winners have already priced in major growth slowdowns) weigh on some stocks that previously shot higher thanks to the stay-at-home trade.
2. Investors Seek Out Cheap, Inflation-Resistant, Tech Businesses
If inflation does keep running hot well into 2022, look for many investors to seek out inexpensive businesses whose bottom lines aren't impacted by a general uptick in goods and services prices. Or, better still, businesses that could actually fare better in an inflationary environment, at least provided that consumer and corporate spending remain healthy.
There are a slew of Internet companies that fit one of these descriptions. For example, online marketplaces, payments firms and travel firms that get much of their revenue from fees that equal a percentage of sale prices, or online ad sellers that could see ad prices follow goods and services prices higher. Hardware and software firms with offerings that are differentiated and/or mission-critical enough to have fairly inelastic demand are also likely to be sought out.
3. EV Sales Inflect and Top Forecasts...
Fully electric vehicles still only account for a little over 6% of global passenger vehicle sales. And in the U.S., the figure is closer to 4%, with Tesla's (TSLA) cars continuing to account for a solid majority of those sales.
But a sea change is clearly afoot. Consumer openness towards buying EVs has been rising quickly in the U.S. and elsewhere; charging stations continue mushrooming; and incumbent automakers are poised to launch and aggressively market a slew of new models over the next 12 months.
Throw in the likelihood of easing chip shortages as 2022 progresses, and it's not hard to see EV sales blowing past forecasts for ~40% 2022 growth. With EVs requiring a lot more semiconductor content on average than gas-powered cars, this is a boon for chip suppliers such as NXP Semiconductors (NXPI) , STMicroelectronics (STM) , ON Semiconductor (ON) and Wolfspeed (WOLF) .
4. ...But EV Upstarts Go Through Some Major Growing Pains
As Elon Musk would gladly tell you, designing/engineering a quality electric car and profitably mass-producing/selling one are two very different challenges.
2022 will probably be a year during which companies such as Rivian (RIVN) , Lucid (LCID) , Fisker (FSR) and Lordstown Motors (RIDE) learn just how difficult the latter can be the hard way. These companies might get the hang of high-volume manufacturing in time, but don't be surprised if missed production and margin targets are a common sight over the next 12-18 months -- especially given that these firms are also looking to ramp production amid chip shortages and other supply-chain bottlenecks.
5. Smartphone Sales Cool Off in 2H22 as the 5G Cycle Nears Its End
Smartphone demand should remain healthy over the next several months, aided by strong consumer spending in the U.S. and elsewhere, an uptick in carrier promotions, flagship Android phone launches and iPhone demand that Apple (AAPL) couldn't get to during the holiday season due to chip/component shortages. Also, with the smartphone acting as the primary computing device for most consumers when they're away from home or the office, sales could benefit from consumers getting out of their homes more.
The back half of the year could be tougher, however. With smartphones upgraded on average every two to three years, we'll be at a point in the fall of 2022 where many of those considered upgrade targets will already own a 5G phone. In the absence of another major selling point to appeal to these consumers -- at least outside of the steady, gradual improvements seen in the displays, cameras and battery lives of high-end and mid-range phones -- this is likely to weigh a bit on smartphone demand. Growing foldable phones sales could help out some, but for now foldables are still a high-end niche market.
6. Chip Stocks Outperform in 1H22...and Are Choppier in 2H22
In the very near-term, chip stocks could see profit-taking amid rotational flows out of tech. But outside of that, I think many chip developers and equipment makers -- particularly the companies that haven't been bid up to steep multiples -- look well-positioned to continue outperforming over the next six months or so.
Demand across many end-markets -- from smartphones and high-end PCs, to servers and gaming hardware, to cars and industrial/IoT products -- remains solid, and a lot of current chip shortages are unlikely to fully go away before late 2022 (and in some cases, 2023). Moreover, I think markets are still in the process of re-rating various chip stocks -- both chip developers such as NXP, ON Semi and Broadcom (AVGO) , as well as equipment makers such as Applied Materials (AMAT) , KLA (KLAC) and Lam Research (LRCX) -- that have historically been valued like low-growth cyclical plays, as investors gain a better appreciation of the secular growth drivers the industry has over the coming decade.
That said, cycles fueled by major inventory builds and draw-downs are still a fact of life for the chip industry, and (as was the case in 2018) chip stocks typically begin selling off before it's blindingly obvious to all that an up-cycle is ending. While the current cycle is unlikely to truly turn before late 2022 or early 2023, it's not hard to see chip stocks -- many of which have registered big gains over the last three years -- coming under pressure before that as observers read the tea leaves -- particularly if signs emerge in the summer or fall of cooling demand in end-markets such as smartphones, PCs and gaming hardware, or of cloud capex entering a digestion period following a long stretch of torrid growth.
7. AMD GPUs Gain Some Ground
Nvidia (NVDA) exits 2021 with undisputed leadership positions in the gaming and server GPU markets. And -- with the help of the company's massive software investments and unmatched developer ecosystem -- it's a safe bet that Nvidia will exit 2022 maintaining said leadership positions. But with the help of an expanded R&D budget that's financing a number of architecture, packaging and interconnect innovations, Advanced Micro Devices (AMD) is becoming a lot more competitive hardware-wise. And that arguably leaves the company well-positioned to take some share in 2022.
AMD's Radeon Instinct MI 200 server GPU line (unveiled in November) turns in very impressive benchmarks for certain high-performance computing (HPC) workloads, and it's also able to leverage AMD's Infinity Fabric interconnect tech to create a unified memory space cross CPUs and GPUs, when paired with AMD's Epyc server CPUs. Likewise, AMD's next-gen gaming GPU architecture (known as RDNA 3) is expected to deliver giant performance gains relative to the current RDNA 2 architecture, while building upon RDNA 2's substantial power efficiency improvements.
Nvidia, which is prepping next-gen GPU architectures codenamed Hopper and Lovelace, isn't standing still either. But among those customers/workloads for whom Nvidia's considerable software and ecosystem advantages don't seal the deal, AMD looks poised to make some headway.
8. Waymo Gets More Aggressive
Since seeing a leadership change in April, Alphabet's (GOOGL) Waymo has launched a "Trusted Tester" program for its driverless cars in San Francisco (not an easy environment to launch a robotaxi service in) and has begun mapping the streets of NYC (ditto). Also, it looks like Waymo has begun prepping for a major expansion in the Phoenix metro area, where for now it only offers its services in largely suburban areas within the cities of Tempe, Mesa and Chandler.
All of this suggests Alphabet's leadership has been pushing Waymo co-CEOs Tekedra Mawakana and Dmitri Dolgov to step up the speed at which their company commercializes the arguably best-in-class self-driving systems it has been developing for more than a decade. It's still pretty early for the commercialization of Waymo's systems in particular and autonomous driving tech in general, but 2022 is shaping up to see more activity than what we've seen in recent years.For those curious, my 2021 tech predictions can be found here and here . I'd say that 14 of the predictions were accurate (#1, #3-#6, #8, #9 and #14-#20), 4 of them were clearly off (#2, #10, #11 and #13), and 2 of them (#7 and #12) were partly right and partly wrong.