What's the Matter With Big Tech?

TL;DR

Big-cap tech is not necessarily over, but Eric Jackson sees greater growth potential in smaller and medium-cap tech companies that could double or triple over three years. His long-short fund, EMJ Capital, favors concentrated, lower-turnover holdings, while beaten-down growth stocks may benefit if inflation continues falling. Read on for his reasoning about valuations, recession risk, and a possible tech recovery.

Transcript

foreign is the era of big cap Tech over hi everyone Welcome to the Real Vision Daily Briefing joining me today is Eric Jackson president and founder of emj capital hi Eric welcome to real vision hey Maggie so this is your first time on the daily briefing if I'm not mistaken so why don't you give us before we jump in why don't you give us a little o... Read More

Key Insights

• 😘 The yield curve inversion, at its lowest level since 1981, signals concerns about a deep recession, but Jackson remains optimistic given the significant damage to tech stocks in 2022.
• ⌛ EMJ Capital focuses on companies that can two or three times their value over a three-year period.
• 💨 Capitalizing on the shift away from China, companies like Bombardier and Shopify present compelling investment opportunities.
• 🔋 Friar, a battery maker, shows promise as an EV play, targeting the supply of batteries to autos and energy storage solutions.
• 🧘 Despite challenges, Farfetch, an online luxury marketplace, has potential for recovery given its dominant position in the market.

Questions & Answers

Q: Is the era of big-cap tech over?

Eric Jackson does not say that big-cap tech is finished; he calls Apple his favorite big-cap tech name and describes it as a great company. However, he believes companies already valued in the multi-trillion-dollar range have greater difficulty doubling or tripling, so he searches for smaller and medium-cap opportunities.

Q: What is EMJ Capital's investment focus?

EMJ Capital is a tech-focused long-short fund led by Eric Jackson. It seeks multi-year compounders that could increase two or three times over a three-year period, if not more.

Q: Why does EMJ Capital favor small- and medium-cap tech stocks?

Jackson believes smaller and medium-cap companies offer more room for substantial appreciation than established big-cap technology companies. A company such as Apple may be well run, but its existing multi-trillion-dollar market capitalization makes doubling or tripling more difficult.

Q: How does EMJ Capital's strategy affect its portfolio construction?

The portfolio tends to be concentrated and have less turnover. Jackson expects to hold selected companies for longer periods because his investment thesis is based on potential performance over roughly three years.

Q: What is Eric Jackson's outlook for U.S. equities?

Jackson is relatively optimistic despite bearish sentiment around financials and recession concerns. He argues that extensive damage had already occurred in 2022, particularly among smaller-cap and growth-oriented technology stocks.

Q: How far had some growth technology stocks fallen?

Jackson says some smaller-cap or growth-oriented technology names were down 70%, 80%, or 90%. He views those declines as evidence that substantial damage had already been reflected in their prices.

Q: Why does falling inflation matter for technology stocks?

Jackson believes that inflation continuing to fall sharply would be bullish for stocks generally. He expects technology stocks, especially growth-oriented names, to benefit because they were among the first to weaken during the corrective phase.

Q: Could growth technology stocks recover before the recession ends?

Jackson believes growth technology stocks could be among the first names to signal a stock-market turnaround. In his view, that market recovery could begin before the broader economic recession starts to turn.

Summary & Key Takeaways

• EMJ Capital, a long-short fund, focuses on tech stocks that have the potential to double or triple their value over a three-year period.

• The portfolio is concentrated and has less turnover, as the fund expects to hold these companies for longer periods.

• Eric Jackson believes that while big cap tech stocks like Apple are strong, there is more potential for growth in smaller to medium cap tech companies.