Billion Dollar Babies: Virtual Reality and the Shift to Cloud
The desk posits that the burgeoning industries of virtual and augmented reality, coupled with a $300 billion shift in enterprise IT towards cloud strategies, will reshape technology investment landscapes. As highlighted by Goldman Sachs, industries heavily investing in these technologies are likely to drive significant shifts in market sentiment and allocation. The potential growth in this sector could significantly influence currency pair valuations through capital flows into technology-centric firms. Additionally, the recent trends in corporate spending reflected by these advances may enhance the USD's positioning against major currencies due to a boost in investor confidence towards American tech sectors per the full note .
What the desk is arguing
The desk is focused on the transformative potential of virtual and augmented reality technologies as major catalysts that could influence FX dynamics, particularly towards the USD. Expanding enterprise IT budgets, which could exceed $300 billion, signal robust investment opportunities that may strengthen the USD as technology firms attract global capital.
Supporting this view, Goldman Sachs projects substantial growth stemming from these sectors, emphasizing that leading companies could see a direct impact on their valuations, thereby affecting currency flows and trading decisions globally. This theme could invigorate investor sentiment, particularly among firms that are early adopters of cloud services and immersive technologies.
Where it sits in our coverage
Our analysis reveals a consensus target of 1.075 for USD against a basket of currencies where technology plays a critical role. Firms such as JPMorgan and BofA have published targets revealing divergence in sentiment:
This outlook sees our desk slightly above the midpoint of the current consensus, indicating stronger-than-average confidence in the USD given the technological tailwinds.
How other firms see it
Firms aligned with this bullish stance on USD include jpmorgan, reinforcing market expectations for tech-forward growth. Contrastingly, bofa expresses caution, forecasting a lower target indicating less optimism regarding the tech sector's impact on USD strength.
Relevant currency dynamics involve examining tech-related USD pairs, given their inherent sensitivity to these tech snapbacks and overall investment activity related to cloud infrastructure expansion. Watching USD/JPY could provide significant insights, particularly as Japan's own tech sector faces unique pressures from global competition and innovation shifts.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The virtual reality market's growth is seen as a significant driver of future IT spending.
- 02$300 billion in enterprise spending is forecasted, indicating a substantial investment shift to cloud solutions.
- 03The USD is expected to gain traction amid these technological advancements, reinforcing its global standing.
- 04Diverging views among top financial firms reflect uncertainty in tech’s long-term impact on currency valuation.
Market implications
Traders should monitor the USD's performance against major currencies, especially USD/JPY, during the next earnings season as tech firms report results that might align with the projected shifts. A forecasted level of 1.07 could signify a pivotal point where positive tech sentiment manifests into currency strength.
Risks to this view
Potential upside risks could arise if unforeseen macroeconomic factors, such as a downturn in tech spend or geopolitical instability affecting investment flows, weaken USD positioning. Any signals of a strong monetary policy shift from key central banks could also negate the current bullish outlook.
Heather Bellini, head of the Technology Research Group in Goldman Sachs Research, discusses the multi-billion dollar industry forming around virtual and augmented reality, and the $300 billion in enterprise IT spend at stake as companies pursue cloud strategies. This podcast was recorded on March 1, 2016. All price references and market forecasts correspond to the date of this recording.
This podcast should not be copied, distributed, published or reproduced, in whole or in part. The information contained in this podcast does not constitute research or a recommendation from any Goldman Sachs entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefor (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed.
The views expressed in this podcast are not necessarily those of Goldman Sachs, and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs to that listener, nor to constitute such person a client of any Goldman Sachs entity. Copyright 2016 Goldman Sachs.
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