Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 415

Why mega-tech growth are the best ‘value’ stocks in the market

The world’s annual $120 trillion economy increasingly depends on just six mega-tech businesses – Facebook, Alphabet (Google), Microsoft, Amazon, Tencent and Alibaba – to function properly. You would think they would continue to all be obvious inclusions in portfolios but investors today have a menu of reasons to avoid or even sell mega-tech investments.

After a strong 2020, many investors are worried all the 'easy money has been made' – a commonly used phrase we hear in our industry which also suffers from acute hindsight bias. Investors are also worried inflation will drive interest rates higher and compress the earnings multiples of higher-growth businesses.

Mega-tech investments also seem boring now – a surprisingly strong criterion some investors seek to avoid. And, of course, there are the never-ending headlines pointing to regulatory pressures across the sector.

Tech has underperformed year-to-date

Yet our analysis shows that mega-tech stocks not only offer some of the best growth opportunities, but also offer some of the best ‘value’ opportunities in the market today. We see material upside in all six of these mega technology businesses. Given the combination of strong and growing advantages, enormous growth opportunities, and material undervaluation today, we believe these names should form the core of any global equities portfolio.

Investors shouldn’t rotate out of mega-tech to value because mega-tech are value.

Our investment philosophy is to own long-term winning businesses operating in the world’s most attractive markets, without overpaying. These mega-tech businesses meet these criteria in the strongest way and they form the core of our portfolio.

Below we look at the top three reasons why mega-tech stocks are some of today’s best value stocks.

1. Mega-techs have the best businesses … ever?

The first reason is that the business quality of today’s mega-techs is among the highest that humans have ever created. They dominate global data, benefit from enormous ecosystems, and have superior economics and scale. The huge cash flows and profits these businesses generate can be reinvested in new business opportunities, spurring fresh rounds of growth. These mega-techs all have a vast array of high-probability growth options in enormous new TAMs (total addressable markets).

Take Facebook, for example. More than 3 billion members log in and spend significant time each month on its platforms. It is unquestionably the world’s best platform for marketers to reach customers. Facebook’s revenues and earnings have been largely driven by the company monetising around 10 million businesses who pay for the company’s digital marketing services. But approximately 200 million businesses use Facebook today, as well as another 200 million ‘creators’.

Facebook is now investing heavily in its conversion and monetisation capabilities, particularly in eCommerce and creator monetisation tools. This will unlock the enormous latent revenue opportunity of these currently non-paying businesses and creators. It gives us great confidence that Facebook’s future revenue and earnings power will be multiples of its current levels.

Facebook: Only a tiny fraction of customers monetise today

Alphabet is also leveraging its advantages in data, talent and time to become a clear global leader in artificial intelligence (AI), which will not only strengthen its existing advantages in its core advertising, cloud and productivity businesses, but will also create brand new businesses, such as Verily which is leveraging Alphabet’s data advantages to solve problems in life sciences and healthcare.

And, of course, one of the biggest areas of future mega-tech growth is the cloud. Amazon, Microsoft and Alphabet, along with Alibaba and Tencent in China, dominate the cloud. Microsoft CEO, Satya Nadella, estimates there will be approximately $8 trillion in incremental IT spend each year globally by 2030, of which cloud-based services and applications will no doubt claim the lion’s share. For the leading cloud providers, their advantages in scale, data and customer captivity will only continue to strengthen over time. Said another way, this is a space for which enormous growth is largely assured and for which the winners have already been defined today. This means that the future revenues and earnings power of these businesses will also be multiples of their current levels.

2. Inflation concerns are overdone

The second reason mega-tech provides fantastic value is that investors are too worried about inflation and what that could mean for interest rates and valuations. Over the first six months of this year, equities in the technology sector have underperformed the broader market largely because investors feared rising rates would slash tech valuations.

We believe those fears and the sell-off are overdone. While we note the same strong headline inflation numbers as everyone else, we struggle to see an extended acceleration in core inflation.

For a start, over the short-term, there remains significant slack in the labour markets relative to pre-pandemic levels, which should limit the acceleration in wage growth. Secondly, our analysis of Chinese credit growth shows a clear and substantial slowing, which is a strong leading indicator for cooling global commodities demand growth over the next 6-12 months.

We also expect structural disinflationary forces – such as ageing populations, labour-disrupting automation technologies and global corporate and government indebtedness – to persist for decades.

Indebtedness: The upward trend has accelerated

But something that has not yet been tested in any meaningful way is the pricing power of our mega-tech businesses. Should these businesses find it easy to increase their prices in an inflationary environment, then this goes some way to insulating investors from the negative effects of inflation. We believe the latent pricing power in these businesses is likely very strong – and in some cases, extraordinarily so.

Take Microsoft 365, for example – arguably one of the most mission-critical software packages upon which many hundreds of millions of employees are reliant each day. This costs just US$32/month, vastly below any reasonable estimate for the value it adds, strongly supporting our latent pricing power hypothesis.

3. Current valuations are too conservative

The final reason that mega-tech stocks are great value is their attractive valuations. Our analysis shows that the expectations baked into the current stock prices of our big-tech names are far too conservative.

  • In the case of three dominant US cloud providers, Amazon, Microsoft and Alphabet, for example, their implied collective annual cloud revenues by 2030 are in the order of just $650 billion higher than current levels, according to consensus estimates. This is a tiny fraction of the $8 trillion increment that Microsoft CEO Nadella expects to accrue to the tech space over the next decade. If Nadella’s forecast above is even remotely accurate, then these cloud providers will see much higher revenues (and earnings) in 2030 than what is currently being implied by consensus estimates.

  • Next, consider Tencent and Alibaba, the latter of which has of course suffered greatly from the Jack Ma saga, with the billionaire Alibaba founder’s fintech Ant Group IPO pulled at the last minute and with Ma reportedly under serious pressure from Chinese regulators and Government. In both cases, despite owning some of the most valuable data ecosystems in China and South-East Asia – including being the two dominant cloud providers on the Mainland – their respective stock prices imply very conservative sets of expectations. Said another way, if revenue growth for these businesses were to fall from healthy-double-digits, to just single-digits by 2025, an investor today would still make money, based on Montaka’s analysis.

  • And finally, the biggest head-scratcher of them all is Facebook, which is priced at a forward earnings multiple of just 14x. Some of the businesses trading at a higher multiple than this today include Australia’s Wesfarmers, Scentre Group, and plumbing parts supplier, Reece. At the current stock price, the market is effectively giving investors all of the upside from eCommerce, the monetisation of the creator economy, WhatsApp, Messenger and Reels, as well as Facebook’s growth in VR/AR for free!

Spectacular potential

As the global economy grows, we are all becoming even more dependent on the highest-quality mega-tech winners.

Today, the collective revenues of these six businesses account for just 1% of global GDP. By 2030, global GDP will probably be around $160 trillion per annum, and these businesses will account for a much larger share than today.

For the patient investor who can look through the short-term noise, we believe these businesses are strong candidates to form the core of any global equities portfolio today. At Montaka, we will continue to own these businesses in size while their prices make sense. Patiently owning the winning businesses in the world’s most attractive industries without overpaying is the way Montaka believes in safely compounding capital over the long term.


Andrew Macken is Chief Investment Officer at Montaka Global Investments. This article is general information and is based on an understanding of current legislation.


July 11, 2021

Another tech company is ZOOM..... that showed a capacity for lateral thing that resulted in a great capacity for lateral thinking contributing to our communications during C19. Further development of their systems expertise should not only protect this valuable resource for our communications generally, but also provide future dividends to it's shareholders. It should be up there.

July 11, 2021

And of course the toxic sludge of fake news, massive censorship (even of experts in their field around C19 and associated experimental therapies silenced/banned) spewing forth from some of these bigger than god behemoth brands, is not at all an issue. Wow.

July 09, 2021

I agree with this analysis, these are six of the greatest ever companies. So why not just buy all six directly, the problem with holding them via a fund is all sort of other stuff gets thrown in.

July 08, 2021

Why do these articles never include Twitter. It seems the favourite ways to communicate for hundreds of millions of people, and its share price has risen a lot lately. Are they struggling to monetise?

July 08, 2021

While I agree with your sentiment 100% you need to be careful when calling these 'tech' companies and then looking at that sector's returns to justify part of your thesis. Only one of the companies is in the Technology Sector.

Amazon/Ali Baba - Consumer Discretionary
Alphabet/Tencent/Facebook - Telecommunications (or Communication Services as it is called now)
Actually only Microsoft, from your examples, is a 'Tech' company.

The Technology Sector is weighed down by 'old' tech.

July 08, 2021

I wholeheartedly agree with this article's sentiments. The valuations of these gigantic companies is not stretched at all - they are money making machines.

July 08, 2021

When you look at their share prices from five years ago until now, they have all achieved over 150% growth in share prices.
They are money making machines, however the average person could not afford to invest in those companies.


Leave a Comment:



The ‘cosmic’ forces leading the US to Modern Monetary Theory

Can quantitative tightening help the Fed fight inflation?

Policy pincers in Australia and the US


Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Now you can earn 5% on bonds but stay with quality

Conservative investors who want the greater capital security of bonds can now lock in 5% but they should stay at the higher end of credit quality. Rises in rates and defaults mean it's not as easy as it looks.

30 ETFs in one ecosystem but is there a favourite?

In the last decade, ETFs have become a mainstay of many portfolios, with broad market access to most asset types, as well as a wide array of sectors and themes. Is there a favourite of a CEO who oversees 30 funds?

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Meg on SMSFs – More on future-proofing your fund

Single-member SMSFs face challenges where the eventual beneficiaries (or support team in the event of incapacity) will be the member’s adult children. Even worse, what happens if one or more of the children live overseas?

Latest Updates


'It’s your money' schemes transfer super from young to old

Policy proposals allow young people to access their super for a home bought from older people who put the money back into super. It helps some first buyers into a home earlier but it may push up prices.

Investment strategies

Rising recession risk and what it means for your portfolio

In this environment, safe-haven assets like Government bonds act as a diversifier given the uncorrelated nature to equities during periods of risk-off, while offering a yield above term deposit rates.

Investment strategies

‘Multidiscipline’: the secret of Bezos' and Buffett’s wild success

A key attribute of great investors is the ability to abstract away the specifics of a particular domain, leaving only the important underlying principles upon which great investments can be made.


Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.


Confession season is upon us: What’s next for equity markets

Companies tend to pre-position weak results ahead of 30 June, leading to earnings downgrades. The next two months will be critical for investors as a shift from ‘great expectations’ to ‘clear explanations’ gets underway.


Australia, the Lucky Country again?

We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world.

Exchange traded products

LIC discounts widening with the market sell-off

Discounts on LICs and LITs vary with market conditions, and many prominent managers have seen the value of their assets fall as well as discount widen. There may be opportunities for gains if discounts narrow.



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.