So with yesterday's CPI print, the market headed into a massive downtrend again. I invest in a bunch of different tech subcategories, but I've concentrated my portfolio (and research time) in certain parts of the market, in particular, to navigate these times - with several unknown unknowns about. It's not wise to respond with bravado but to wait and see with the unprecedented macro cocktail.

To put it simply, I wanted something that would be less exposed to US-macro cyclicality - when it comes to fundamental performance through a possible/probable recession.

My tech/growth universe includes:

IMO, attractive areas of value for prudent stock pickers exist within Software and Semiconductors. I don't mean the entire constituents of these categories - but these are compelling hunting grounds for fundamentals and valuation when everything is being sold off almost indiscriminately due to macro forces.

There's cyclical-related software, but then there's other stuff that's essential to the operations of all enterprises that smooths over a downcycle on sales. Mature businesses with free cash flow (FCF) are in a relatively much stronger position vs disruptive growers than they were previously. Private names and cash-burning tech that went public recently will have to lay off employees and spend considerably less on customer acquisition. This gives those who can spend on S&M a major strategic advantage. Quality is essential - a strong balance sheet with negligible cash burn, strong recurring revenue, and strong retention. Cybersecurity, infrastructure providers, and deeply integrated software vendors that have demonstrable ROI that's quick and recognizable will be fine. Software IS how a modern enterprise runs, and the enterprise will recognize that spending on the latest gen of digital transformation IS exactly how they'll be cutting expenses in this environment. I see parts of the category being seriously resilient even in a down-cycle on fundamentals. Meanwhile, ad-tech software and consumer-tied or marketing software are perhaps best avoided.

FCF generative leaders like $MSFT, $ADBE should be more than fine and others that are also category-leading disruptors like $SNOW or $CRWD... but for those who're really digging through, there would have been companies that were more drastically hit (70% or more) - that shouldn't have been based on their inherently high quality. That's where greater alpha might to be found.

This could be a contrarian take. Why am I suggesting perhaps one of the most historically macro cyclical industries around as an avenue for potential value? To put it simply, compute demand is on an exponential trend, and the semi-industries have struggled to keep up with the massive demand. Autos, data science, data centres, AI & ML, are trends that will keep up through a down cycle which impacts consumers more so than enterprises. The category as a whole isn't as consumer-related as before but is more infrastructure-related. The weak players will take the brunt of a down-cycle, while demand should stay much higher for the stronger players around. Many stocks took a hit already, and valuations have compressed quite a bit considering long-term potential. $AMD is one that fits the bill that I'm long-on. There's pretty solid stuff out there with moderate growth trading at <20 P/E now, down from 30x + on the value side.

If you were invested in energy or the techy renewables since January, then congratulations on hedging some of this mess. My macro point of view is that the free market moves towards an equilibrium state - the speed depends on the elasticity of the systems involved. With something as complex as the supply chain of oil and gas, it is highly possible that geopolitical players like China and India would take on the volume that was imposed by sanctions in the West. It just takes a lot of time for supply to meet demand as the system is rather inelastic. But on a more important observation, energy-related companies are simply expensive for my taste now, and it's a bit late for the trend. The market has a tendency to take short-term trends and extrapolate them very quickly to justify a high sticker price. I think it was overdone with the software on the negative side and could be done with energy on the positive side now. The software has predictable sales and sometimes cash flows to ride on... energy can flip (or sustain, who knows?), and risk/reward just isn't that attractive to me should a reversion be severe.

I do have some consumer-related picks, even in a US recession, but I think emerging markets like Southeast Asia, Brazil, or Korea are the way to go with a serious emphasis on profitable pathways. Again, weaker players will be eliminated, and the leaders will exercise pricing power. $SE, for instance, should be well supplied to ride out the death of GRAB and GoTo if it comes to that despite their cash burn, as they've got plenty on the balance sheet. Wait for competitors to die, raise prices. Emerging countries are also not experiencing the nutty inflation the US is. Korea is about 5% CPI instead of 8.6%. There's the US stimulus extra contribution towards the difference if you ask me.

Fintech is tricky... some are extremely cyclical, and others are much less so. It seems like the area has been crushed more than most other categories and appears higher-risk higher-reward in a few names should you get your thesis aligned. $UPST and $MQ come to mind.

P.S. I view everything with a long-term lens, and that means multiple years - even through a somewhat depressed economy. So that's the perspective with which I make my commentary. If you have a tactical trading and trend-driven style, these views may not apply to you.

Would love to also open the discussion to commentary on tech + the macro situation. I was perhaps late to fully grasp this, but one can't afford to be macro agnostic as before ... even if it worked for 10 years pre-2021.