1/8/23, 3:38 PM Technology sector outlook | Fidelity

Tech: Big trends to watch

The digitization of life and business can continue to create
opportunities.
BY ADAM BENJAMIN, SECTOR PORTFOLIO MANAG E R – 12/14/2022

Key takeaways
While the past year was undoubtedly challenging for tech, I still see plenty of
powerful trends to drive potential value for investors.
Cloud computing, artificial intelligence, and the growth of the 5G wireless network
may have created long-term opportunities in the sector.

After the so-called "tech wreck" of 2022, some investors may be wondering if the
information technology sector's best days are now behind it.

But look beyond the challenging headlines that some companies have faced of
late, and one can find powerful long-term themes creating potential value for
investors—like the shift to hybrid work and continued adoption of cloud
computing. And after recent price drops, some opportunities may even be found
to invest in these themes at attractive valuations.

A challenging past year

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Before digging into the sector's recent history, it may be useful to explain what's
included in the information technology sector and what isn't. The sector is
predominantly composed of companies that make and sell technology software
and services. It does not, however, include companies that are popularly thought
of as tech companies but that primarily earn revenue from digital advertising, like
Alphabet and Meta (which are instead part of the communication services sector).

Past performance is no guarantee of future results. Technology sector performance is represented by the
S&P Technology Select Sector index. Data as of Dec. 9, 2022. Source: S&P Dow Jones Indices, a division of
S&P Global.

Those notable exclusions may help to explain why the sector's performance in the
past year—though still lagging the S&P 500®—wasn't worse at the aggregate
level.

The sector did, however, suffer from the same challenges as the broad market,
including investor anxiety related to high inflation and rising interest rates. And

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with consumers and businesses increasingly worrying about growing recession

risk, some buyers reduced spending on technology.

Opportunities in cloud computing, 5G, and

semiconductors
But the macroeconomic and geopolitical anxieties of the past few years may have
merely distracted investors from powerful long-term trends that could continue to
create opportunities for information technology companies.

For example, virtually every company in every industry is now looking to use
technology to get closer to its customers, innovate more quickly, and operate
more efficiently. Many firms are embarking on multiyear digital transformation
projects, and this may only accelerate as companies adapt to hybrid work
environments. Companies that provide the technology to aid in these transitions
could be potential beneficiaries of this trend. Firms such as Salesforce (CRM),
HubSpot (HUBS), Twilio (TWLO), and Microsoft (MSFT) have supported this
investment thesis.

Fund top holdings*

Top-10 holdings of the Fidelity® Select Technology Portfolio (FSPTX) as of October 31,
2022:

24.7% – Apple Inc. (AAPL)

16.8% – Microsoft Corp. (MSFT)

5.7% – Nvidia Corp. (NVDA)

5.6% – Mastercard Inc. Class A (MA)

4.1% – Marvell Technology Inc. (MRVL)

3.2% – NXP Semiconductors NV (NXPI)

3.1% – Salesforce Inc. (CRM)

2.8% – ON Semiconductor Corp. (ON)

2.4% – Cisco Systems Inc. (CSCO)

2.3% – GlobalFoundries Inc. (GFS)

(See the most recent fund information.)

In particular, increasing adoption of cloud computing continues to be a disruptive

influence, as enterprises shed their in-house hardware-based architecture in favor
of cloud-based systems. Roughly 60% of corporate workloads have already
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moved to the cloud, and that figure is projected to rise to roughly 70% by 2025.1
One of the key advantages of cloud computing is the ability to tap into artificial
intelligence and machine learning (AI/ML). Our modern digital economy throws
off vast quantities of data every day, and AI/ML can help businesses to organize
and make sense of that data—a need that could only grow in the years ahead.
Recent holdings that illustrate this investment thesis include Nvidia (NVDA),
Marvell Technology (MRVL) and Snap (SNAP), as well as previously mentioned
Salesforce.com and Microsoft.

In telecommunications, the move to 5G wireless networks is well underway. As

more bandwidth becomes available, industries—including health care, media,
manufacturing, housing, energy, agriculture, and transportation—may find ways
to make use of it. That increased bandwidth could help support the move in many
industries toward more autonomous systems (such as, eventually, self-driving
rideshares). The large cloud platforms in the US—specifically Microsoft Azure,
Amazon Web Services (AWS), and Google Cloud—are also working on designing
architectures so that they can essentially serve as an extension of mobile
networks, effectively merging these networks with their clouds. Stocks that can
play a part in advancement of these themes include Marvell Technology, Apple (
AAPL), and Nvidia, as well as Uber Technologies (UBER), and Lyft (LYFT).

Semiconductors are key to bringing all of these technologies to life, and demand
for semiconductors could remain high in 2023. The pandemic disrupted supplies
of chips for many industries, particularly in automotive production. In response to
those disruptions, new chip factories are being built and planned in multiple
regions to create more certainty of domestic supplies in the years ahead. Recent
holdings that illustrate this investment theme include GlobalFoundries (GFS),
Taiwan Semiconductor Manufacturing (TSM), Teradyne (TER), and ON
Semiconductor (ON).

Looking ahead with cautious optimism

After a vexing year, 2023 may be a more interesting and hopeful one for the
technology sector. While a recession, should one occur, could slow the pace of
the long-term changes that are pushing the sector forward, best-in-class
companies benefiting from these themes could nonetheless present long-term
opportunities as well as attractive valuations.

Next steps to consider

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Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a
prospectus or, if available, a summary prospectus containing this information. Read it carefully.

1. Source: IDC.

*Any holdings, asset allocation, diversification breakdowns or other composition data shown are as of the date indicated
and are subject to change at any time. They may not be representative of the fund's current or future investments. The
Top Ten holdings do not include money market instruments or futures contracts, if any. Depository receipts are normally
combined with the underlying security. Some breakdowns may be intentionally limited to a particular asset class or other
subset of the fund's entire portfolio, particularly in multi-asset class funds where the attributes of the equity and fixed
income portions are different. Under the asset allocation section, international (or foreign) assets may be reported
differently depending on how an investment option reports its holdings. Some do not report international (or foreign)
holdings here, but instead report them in a "Regional Diversification" section. Some report them in this section in
addition to the equity, bond and other allocation shown. Others report international (or foreign) holding as a subset of
the equity and bond allocations shown. If the allocation without the foreign component equals (or rounds to) 100%, then
international (or foreign) is a subset of the equity and bond percentage shown.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on
market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not
necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the
information.

References to specific securities or investment themes are for illustrative purposes only and should not be construed as
recommendations or investment advice. This information must not be relied upon in making any investment decision.
Fidelity cannot be held responsible for any type of loss incurred by applying any of the information presented. These
views must not be relied upon as an indication of trading intent of any Fidelity fund or Fidelity advisor. Investment
decisions should be based on an individual's own goals, time horizon, and tolerance for risk. This piece may contain
assumptions that are "forward-looking statements," which are based on certain assumptions of future events. Actual
events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking
statements will materialize or that actual returns or results will not be materially different from those described here.

Past performance is no guarantee of future results.

Investing involves risk, including risk of loss.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or

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economic developments.

Because of its narrow focus, sector investing tends to be more volatile than investments that diversify across many sectors
and companies. Sector investing is also subject to the additional risks associated with its particular industry.

The technology industries can be significantly affected by obsolescence of existing technology, short product cycles,
falling prices and profits, competition from new market entrants, and general economic condition.

The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity,
and industry group representation to represent US equity performance.

The S&P Technology Select Sector index comprises those companies included in the S&P 500 that are classified as
members of the technology sector, with capping applied to ensure diversification among companies within the index.

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