Large Cap Investing During Volatile Markets


Ankur Crawford : I think, going into this crisis, the semiconductor companies and the semiconductor supply chain was in much better shape than it had been. The inventory depletion of the supply chain had been complete and companies were starting to ship back to normal. One could argue that we were at the beginning of the semiconductor cycle again, such that the companies will start to ship to end demand. And when you look at end demand, what made us very bullish about semis–and still we hold this view–is a lot of the innovation trends, whether it's AI, cloud computing, you know, machine learning, all of these things, needs compute and they need more and more compute, different kinds of compute and it's going to become pervasive. And that is something that hasn't changed. What has changed, however, because of coronavirus, is there's a question about end demand. Historically, semis go up and down with GDP and the cycles are a function of GDP, in part because the product cycles have not been quite as robust as they are this time around. And what coronavirus has done is it's given a pause to all consumer spending, all enterprise on premise spending. And so we are seeing a little bit of a pause in the auto end market for example or in servers that are being sold to an enterprise that you would put inside of your offices because there's no one there to install it right now. That has been counteracted, actually, by a rise in cloud spending and in the amount that is being spent by the Microsofts and the Amazons and as people move to the cloud, which is what we discussed earlier in the call. There's going to be, in the semi market, kind of the haves and the have nots again where I think a lot of companies will benefit from these long term trends that we discussed and really that the semis are the–the core and the intelligence behind every kind of technological innovation and they play into that. In the near term, there will be some hiccups, whether it's in the consumer end markets or it is in kind of, as I mentioned, these on trend type markets. That said if we look at the valuations on semis they are cashflow machines and if you look at them on an enterprise value (EV) to free cash flow, even on numbers that need to get cut, the valuations still are seeming very reasonable.

And the reason that we have, I suppose, confidence in the EV to free cash flow numbers that we have modeled out is because some of these trends are not stoppable. Coronavirus or not, some of the trends that we're seeing in cloud computing and in IoT, are not going to end because coronavirus is here; they're going to get accelerated. The need for either the manufacturers to manufacture the equipment or the semiconductor companies to provide the intelligence–or the chips that provide the intelligence–that is still going to be there. It's just in the near term, the slope might be a bit more muted. Kevin Collins : Thank you, Ankur and Patrick, for your very insightful comments. We really appreciate this in volatile times, this access to your thoughts. I think it's very good that you're positioning yourself to be a great partner to your clients. And to that end, I'd also like to thank our clients for their interest in the call. And finally, on behalf of all of Alger, I'd like to wish our adviser partners, our consultants, our investors, a very safe coming weeks and months and thank you for your business. Have a good day.

Made with FlippingBook - Online catalogs