Skip to Content
Quarter-End Insights

Tech and Telecom: M&A Heats Up, and the Cloud Changes the Landscape

Mergers and acquisitions are ramping up (as are rumors), but with the sector slightly overvalued, we stick to fundamentals and seek firms with established economic moats.

Mentioned: , , , , , , , , ,
  • Foreign exchange will still have an impact on 2015 results, but we haven't seen it affect the tech spending environment all that much; the sector still looks 5% overvalued, and we'd be selective.
  • We expect spending on cloud applications to grow nearly 20% annually to reach $62 billion by 2019. Improving sales and marketing efficiency will drive significant operating leverage at many software-as-a-service firms.
  • Semiconductor mergers and acquisitions are heating up, with high-profile deals at  Intel (INTC) and  Broadcom (BRCM).
  • The telecom market overseas is still consolidating; European activity is being led by convergence but still may slow following the appointment of its new antitrust chief.

Despite a modest increase for the S&P 500 through the first half of 2015, it hasn't been a particularly smooth ride for investors. Performance for the technology sector in aggregate has been slightly stronger, up around 3%, but there were notable areas of strength and weakness. Global currency movements over the past two quarters have resulted in slightly elevated volatility across both the technology and communications-services sectors, but the overall tone from management teams has been fairly positive in terms of the macro environment. In aggregate, we view the tech sector as slightly overvalued and remain selective in our picks.

Peter Wahlstrom has a position in the following securities mentioned above: AAPL, INTC, MSFT. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.