MANAMA Stocks Should Continue to Empower SPY, VOO and QQQ till 2024 and Beyond

These are Microsoft (MSFT), Apple (AAPL), NVDIA (NVDA), Amazon (AMZN), Meta Platforms (FB) and Alphabet (GOOG) which I have aggregated under the acronym of MANAMA. Three of the ETFs which own them are the SPDR S&P 500 Trust ETF (SPY), Invesco QQQ ETF (QQQ) and the Vanguard S&P 500 ETF (VOO).

Source: Prepared by author

The funds hold these mega-cap tech stocks as part of their top holdings, with the exact percentage held out of total assets held varying and depending on the objectives of the individual fund managers. Looking at the last one-year period, the three have delivered performances of above 28%, with the SPY and VOO gaining 28.54% and 28.59% respectively, slightly outperforming QQQ at 28.31%. Now, the fact that SPY and VOO, despite holding companies in the non-tech sector like pharmaceuticals and financials have managed to deliver such gains normally associated with QQQ would tend to show that in addition to their individual portfolio specifications, they have also benefited from the “MANAMA factor”.

Source: Trading View

For this matter, both SPY and VOO are passive ETFs with expense ratios of just 0.09% and 0.03% respectively, far below the tech-heavy QQQ’s 0.20%.

The case for technology

One certainty is that tech has been growing since man invented fire and tools, and will continue to grow as long as he inhabits the earth. Starting with Microsoft, its current CEO Satya Nadella has successfully transformed his company from a traditional software company to one whose revenues are based on the cloud, and this, despite embracing the SaaS (software as a service) model after Amazon. The latter, known primarily for its online marketplace, continues to grow at a frantic pace. After having been the first to market the commoditized cloud services since 2006, Jeff Bezos’ company now aims to provide private 5G services with its usual “as-a-service” approach as well as launch its own constellation of communications satellites.

Now, the market size for 5G and related services should grow from $53 billion in 2020 to $249 billion by 2026, whereas for cloud computing, it should reach  947 billion from 445 billion in 2021. This rapidly expanding market should also benefit Google, with its AI focus.

As for Facebook, its name change into Meta Labs marks a shift in its CEO’s vision of the future, namely from a social networking company to one which is increasingly oriented towards virtual reality. Also, knowing Mark Zuckerberg failed attempt to launch a cryptocurrency sometime back, it is highly probable that FB will most likely acquire one of these blockchain-powered metaverse projects like Sandbox or Decentraland where goods ranging from virtual land to digital art are being exchanged for millions of dollars.

As for Apple, with its smartphone and forthcoming augmented reality devices, it should play a key role in the transition from the metaverse to the physical world and vice versa.

Metaverse demand and huge addressable markets

Now, in order to build smartphones, 5G equipment, electric cars, or cloud, you need powerful chips, produced by the likes of NVIDIA. The company through its GPU-based processors has a niche position among gamers as well as Bitcoin miners. This is a company that has been very innovative in the type of chips it produces and is expected to benefit significantly from metaverse demands as evidenced by its share price surging higher as shown in green (in the chart below), with the start of the surge coinciding with Facebook’s change of name.

Source: Trading View

In this respect, the global metaverse revenue opportunity could approach $800 billion in 2024 compared to about $500 billion in 2020, out of which $400 billion would be made of online games and the rest by opportunities in live entertainment and social media. Interestingly, one company which should benefit as people’s purchasing habits evolve into more “experiential events” is Amazon, which only saw only a 3.79% appreciation this year.

Valuations and key takeaways

Consequently, with addressable markets in their areas of operations expanding rapidly and big techs having the cash to make acquisitions to power on with growth, I see share prices continuing to rise well into 2024. As for valuations, I foresee a 25% upside for SPY, VOO, and QQQ by the end of next year, based on the forecast of analysts at Wedbush Securities, according to whom the NASDAQ will reach 19,000 by the end of 2022, on grounds that mega-caps benefiting from continued tech spending as there is more focus on digital platforms, both for work and entertainment purposes.

Finally, the first part of 2022 should be volatile for stocks in general due to inflationary pressures and this is likely to impact valuations, but I am positive on tech generally, more specifically on MANAMA’s stocks as they take on the task of converging our physical and virtual worlds through an evolution as to the way we interact socially, purchase goods, work and entertain ourselves.