My 2022 Tech Predictions and Investment Ideas

Happy New Year!

Last year, I wrote a blog of my Top 10 Predictions for 2021. You be the judge, but I think most of my predictions came true, or are on their way to becoming a reality. Now, it’s time to make my 2022 Tech Predictions. Since I’ve been actively investing in the public capital markets and also in several startups in 2021, I thought to also augment the predictions with some Investment Ideas. It's enormously inspiring to see entrepreneurs who are doing creative work, innovating at cloud speed, and winning customer traction in ways I’ve never witnessed before. We live in a truly incredible time - where technology is at the center of a revolution of all things digital.

Here they are, I apologize in advance for this blog's length…

1. Apple and Microsoft will continue to shine among the Big 4 Tech Players.?When I first arrived in the US as an immigrant in the late 1980s, everyone was talking about two companies in the tech economy – Apple and Microsoft (my first two jobs after college were at Microsoft, then Apple). Here we are in 2022, and we're back to talking about Apple and Microsoft! ?Granted, it’s a different era for Apple and Microsoft (more complementary to each other than just a battle of Windows vs. Mac), but these are the two key companies in the likely $3 trillion market-cap club. I predict, they will be the best performing of the Big 4 companies, in 2022. I estimate half of the $3 trillion Apple market value ($1.5 trillion), is their incredible services business. Apple has a bright future - they can play the metaverse trend with AR/VR devices and I fully expect that we will see an Apple car in the next 3-5 years. Microsoft has an incredible breadth and depth in their tech portfolio – across infrastructure, platform and applications. The other two of the Big 4 – Google, Amazon – I predict, also stand to grow in market-cap in 2022, but probably not as much as Apple and Microsoft will.?Google was the best performing stock of the Big 4 in 2021, and they have continued upside ahead of them with many of their bets, including Google Cloud that will be a solid #3 in the market. Amazon stock was relatively flat in 2021, but I expect they will recover in 2022 as the year-over-year compares on their consumer retail side gets better (2020 was a stupendous year of growth for Amazon during the pandemic). AWS continues to be growing well and is comfortably #1 in the public IaaS market, by quite a margin.
2. The crazy Cloud software valuations are over. Like a game of “chutes and ladders”, since Nov 19, 2021, there has been a collapse in the Cloud and Software Tech stocks going into Jan 2022. If you wind back to 2020, the pandemic was a boon to the Cloud companies. In 2020, the Cloud basket (proxied by the WCLD index) grew 105%, and the software basket (proxied by the IGV ETC) grew 46% - in a year where the S&P 500 grew 13% and the NASDAQ grew 39%. Starting around Nov 19, 2021 – there’s been a rotation out of software and especially out of Cloud.?The WCLD index is down 25%, and the IGV ETF is down 11% - all while the S&P500 has been relatively flat during that time period. It’s been like one crazy post-Thanksgiving Black Friday discount sale. Part of the reason for the collapse has been nervousness around the Fed rate hikes and fears of inflation, but there’s also the fact that several of the pandemic cloud names (e.g. Zoom, Docusign) saw significantly slower growth in Q3, and some of the SaaS Apps plays also had mixed Q3s (e.g. Salesforce, Adobe, Autodesk, Coupa, Veeva). The net-net takeaway is this – if companies with multiples of 50x-100x revenue don’t grow into their valuations and show a path to profitability, any slowdown in growth and they'll get crucified in the public markets.?That said, as things bottom out, this is a good time to BUY, the category winners in the 1H 2022.?Here are some of my favorites below.
3. Cloud Data Platform and SaaS Apps will be where the value is: The Cloud Infrastructure space will start to commoditize by the Big 3 Clouds (Amazon, Azure, Google in that order), and value will move toward the Data Platform layer and the SaaS Apps layer. Increasingly, key functional horizontal and industry vertical SaaS plays will be where the value solidifies. I’ll cover the Data and Analytics category next, but in the SaaS Apps layer, I favor these companies: Salesforce, Adobe, ServiceNow, Shopify, Workday, Autodesk, Veeva (who would make a very interesting acquisition candidate for Salesforce). I also predict there is going to be a rapid compression in market-cap of many of the smaller CRM companies who have gone public recently, as spending in the front-office wanes. The CROs of the world don’t need yet another customer engagement, customer success, marketing optimization tool!
4. Cloud Data Platform, Analytics and AI are the new oil:?The one category that has a bright future among the Cloud Platform is the Data layer, e.g. Snowflake, DataDog, Confluent, MongoDB – and the potential IPOs of DataBricks as well as AI players like DataRobot. I predict those AI players will have a much better outcome in the public market, than the early entrant with the ticker symbol "AI", C3.ai, for a fundamental reason – they have a lot more customers than C3 does. (The IPO of C3.ai, has sadly been a bust - C3.ai went public at $42, shot up all the way to $176, and is now $29!)
5. The Big 4 Tech players will not do be able to do big M&A moves. I predict that Nuance was the last big M&A move by one of the Big 4 players, Microsoft, for the near future. Traditionally, the rule of thumb was, you could use 10% of your market-cap to acquire companies. That would allow those $2 trillion+ market-cap giants to consider large acquisitions well over $50B in market-cap. However, we live in a different regulatory environment today. The new Biden Administration’s FTC Chair, Lina Khan, and the EU will make it difficult for any major M&A by them for over $20B. Certainly Facebook, Google, Amazon have more regulatory scrutiny around them, than Apple and Microsoft. It’s a different era from four years ago - when Microsoft was able to acquire LinkedIn for $26B in 2016, GitHub for $7.5B in 2018, and Nuance for $19.7B in 2021.?I don’t see as much antitrust scrutiny surrounding the tech companies in the $250-300B market-cap range, because they can claim they are competing with the Big 4 Tech players. So, I predict, there could be more deals like Salesforce/Slack for $27B, and Oracle/Cerner for $30B.?I’ve been surprised to not see Cisco more acquisitive – they could easily acquire Cloud infrastructure players, e.g. HashiCorp, GitLab, Confluent, or some of the Security plays like Splunk or SentinelOne, as valuations compress.
6. Cybersecurity will continue to be a hot growth area.?I predict the bigger security players will get stronger, as CISOs consolidate their Security sprawl of 50 different tools they use, to 3-4 key platforms. I predict that the biggest new entrant at scale, Microsoft, will create a $20B Security business in 2022 (they’ve already stated that their Security business is $10B growing 40%).?Palo Alto will become the biggest Security market-cap player, eclipsing the position that CrowdStrike held in 2020. After an incredible 2020, CrowdStrike had a flat year in market-cap growth in 2021. I predict, that if the growth of CrowdStrike or SentinelOne in Endpoint Security slows down even an iota in 2022, the ride down “Chutes and Ladders”, for their market-caps will be brutal. I also expect there to be an increasing focus on shift-left, developer security – especially after the Log4j vulnerability came out in Dec 2021, which is a wake-up call to the Security industry that we need strong developer security tools. Net-net, I favor a basket of these 5 public Security companies – Palo Alto Networks, CrowdStrike, Cloudflare, Okta, Zscaler. Among the private companies, I favor the developer security leader Snyk (full disclosure I am on their Board, so I admit my bias toward them).??
7. Open-source software models will thrive. I spent the last 16 years of my life at two kings of the “proprietary software” world – SAP and VMware. However, I've grown to admire the world of open-source, and the disruptive effect they are having on traditional enterprise software. You can’t beat the pace of innovation of millions of developers. It's resulted in the success of companies like RedHat, MongoDB, Confluent, DataBricks and others. Recently, I’ve been investing more in open-source venture funds and open-source startups that have enormous potential to disrupt the status quo. The venture funding round of the startup, Grafana Labs was impressive, and it’s worth watching them closely. Will the disrupt DataDog? I’ve been spending more time recently with another startup, Minio, and I'm impressed by the developer traction they are having as an open-source, high-performance, object-storage platform.
8. Semiconductors: For the first time in history, the top 5 semiconductor companies by market-cap doesn’t include Intel. They are #1: Nvidia at $730B; #2: TSMC at $690B; #3: Samsung at $434B; #4: ASML at $316B; #5: Broadcom at $277B. I predict that Nvidia will blow past the $1 trillion market-cap in 2022, even without the ARM acquisition (which I predict will likely not happen). Qualcomm will surpass Intel in market-cap in 1H 2022, and it is likely AMD will surpass Intel in 2H 2022. The Intel turnaround will take another 3 years at least, and I predict the CHIPS act will pass in Congress (at least I hope it does), but the chip shortage will be with us through 2H 2022.
9. Netflix will eclipse Disney in market-cap. While there was fascination with Disney+ in the early momentum surge of subscriber growth, it seems like the momentum around Disney has stalled toward the end of 2021, and everyone is talking about the content on Netflix.?Over a 1yr or a 2yr period, the NFLX stock has performed better than DIS, and with Covid bringing uncertainty around theme parks and such, I’m long NFLX ($261B market-cap). I predict they will soon eclipse DIS ($283B market-cap).?
10. Metaverse use-cases will become clearer. Nvidia stands best to gain from the metaverse growth, as does Qualcomm, Google and Meta Platforms. A lot the metaverse will be built on AI that is powered by Nvidia chips, That said, most people don’t know what the metaverse is. Beyond AR/VR goggles and such, I’m hoping there will be examples of the metaverse that families and businesses can relate to, that go beyond fantasy video games. Let me give you a few examples everyone can relate to, that are incredibly exciting. I want my great-grandchildren to have an engaging “live” conversation with my father on Biblical topics (as context, my dad, Zac Poonen, has spent his life as a Bible-teacher/church-planter in India). Zac would be conjured back alive, 100 years from now, in virtual reality, and my great grandchildren will engage with him on any Biblical topic they want to ask him about.?Or, they could have an interactive political science discussion with Professor Condolezza Rice from Stanford, 50 years from now, on US-Russia relations. Or here’s another one. I’d love to have doctors in remote Bangladesh, access the best medical expertise from any part of the world, for their upcoming surgical procedure, all via a metaverse-assisted AI conversation with experts. All these scenarios will be possible, not dozens of years from now, but I predict, in the next 3-5 years. They are tangible examples of the AI/ML-assisted metaverse that I am incredibly excited about, as should you.?But today, most people don’t understand the relevance of the metaverse to their normal lives. We need to inspire them with these use-cases, that will impact their social well-being, their health and business. The world of AI/ML will have profound impact on our future.

We could make another 10 predictions on many of the emerging new categories of Quantum Computing, Web3, Blockchain, innovations in FinTech (note: the market-caps of PYPL and SQ were down 35% in 2H of 2021). Suffices to say, I'm quite excited about a rich set of innovation in these categories that will start to play out in tangible form in 2022.

Let me close with an investment question. In the charts below, you see the best and worst performing S&P 500 and NASDAQ 100 stocks in 2021 (courtesy CNBC).? Who do you think will be the best performing in those indices in 2022?

I welcome feedback on my blog in the comments section below...

All the very best for a healthy and prosperous 2022!