Recently we've been hearing discussions and market actions implying the weakness in tech-heavy Nasdaq compared to industrial or value-heavy Dow Industrials. Even for ourselves, we've been focusing a lot on value, industrial, cyclicals. However, we want to diversify the portfolio with growth names because when the economy slows down, industrials/cyclicals are guaranteed to get hit. Yet another however, we don't want to own unprofitable growth. This narrows down the list to stocks referred to as "reliable growth at a reasonable price." When the phrase is said, mega-cap technology stocks, or FAANG, come to mind, the likes of Facebook, Apple, Amazon, Netflix, Google, Microsoft, Nvidia. Traditionally FAANG included the first letter of five mega-cap names, however the list have expanded in the past years such that now, FAANG just refers to mega-cap growth tech stocks. 

Given the year-to-date gains in these mega-cap tech stocks, it's reasonable to see folks booking gains here, hence we're seeing recent relative weakness. We also did some trimming ourselves. As we did that prudent trimming, we also kept ample skin in the game with each of those positions, given the fundamental outlook for each of them. As we look ahead for oncoming catalysts, next week brings CES 2022, then we have quarterly earnings season, which is soon followed by Mobile World Congress 2022 in February. Apple will likely have an event somewhere in between the December earnings season and Mobile World Congress. Each of these events will more than likely offer confirming thesis points for the why we hold each of these positions -- including in 5G, the internet of things and the expected increase in data consumption and creation that will drive additional network and data center capacity. The events will also likely showcase new technologies that will drive latency even lower and expand network capacity through the communications pipe.

Consider this lone example, according to data published by McKinsey: Connected cars create up to 25 gigabytes of data per hour, but self-driving cars will generate and consume around 40 terabytes of data for every eight hours of driving. We're not close to self-driving or autonomous cars getting approved, let alone being adopted, but it's the path to that goal that will add incremental layers of data coursing through networks as more functionality is layered on. And this means more chips bringing those capabilities with networking gear as well, which helps explain why the global automotive semiconductor market is projected to reach $63.9 billion by 2027, up from $42 billion in 2020. That in turn explains why Advanced Micro Devices (AMD) and Skyworks (SWKS) are keen to attack that market.

We could make similar arguments about 5G, cybersecurity and cloud-computing, but the central dogma is the circle of data creation and consumption that grows the number of connected devices, driving demand for greater network capacity and data speeds, which in turn open up new applications. With artificial intelligence, augmented reality and virtual reality, the connected car, IoT and perhaps what we'll see with the metaverse, we remain long-term bullish on tech because there are always new markets and room to grow market shares.

Bottom Line: A much stronger and brighter future is out there for the growth tech stocks that we own. The problem we have is how much investors are willing to pay for those future growth. We already saw that investors were willing to pay a lot for some of the cloud-computing names such as Snowflake or Salesforce, sometimes greater than 20 times forward SALES in the period leading up to Winter of 2021. However, these were times of free money and there were no other games in town besides the stock market. 2022 will be a different picture. The Federal Reserve has already reduced the pace of money-printing, will stop completely in March, and will raise interest rates later in the year - market is already pricing in 3 rate hikes for 2022. Money will not be free, it will have a cost, therefore valuation of future earnings have to come down. We will not hear stories of pre-earning companies, or more than 20 multiples of sales, because the higher cost of money make it such that those future earnings are not worth as much now. What is left? You have to go with companies that have real and high earnings, and trade at reasonable earnings multiple. For us, since the forward multiple of the S&P500 is currently 25, we'd be uncomfortable owning anything trading more than 30x. These are called "growth at a reasonable price."