Alex Yee is an Analyst on the Communication Services and Technology Research Teams. Before joining Brandes, he was an Investment Associate within the investment office of the Moore Foundation, which manages the Foundation’s endowment. Prior to that, he was an Investment Banking Analyst at UBS. Mr. Yee earned his MBA from the MIT Sloan School of Business and his BA in Economics and Molecular and Cell Biology from the University of California, Berkeley. Mr. Yee’s experience began in 2011 and he joined Brandes Investment Partners in 2018.
In the fast-evolving world of technology, the concept of value investing frequently appears incongruent with the sector's rapid expansion and what we consider high valuations. To unravel this paradox, we spoke with Alex Yee, a technology analyst at Brandes. With an eye on emerging trends, such as AI (artificial intelligence), and the effects of legislation, Alex explains the Brandes approach to seeking opportunities that others might overlook. Alex has 13 years of experience and has been with Brandes for five years.
The technology team has stayed quite busy this year. I do believe the idea that value and tech are incompatible is a myth. At Brandes, we take a holistic approach to the tech sector. Our approach involves quantitative screens backed by qualitative research, studying the technology, considering market trends, and having discussions with various market participants. Making sure that we understand the real-world drivers and phenomena that are driving the more quantitative numbers that we are looking at is the key.
In our valuation process for tech companies, we closely examine the potential impact of government incentives. These include seeking to understand their broader effects on semiconductor manufacturing capacity, capital expenditures, and sales of semiconductor capital equipment. These aspects significantly influence our analytical approach. However, it's important to note that beyond government incentives, other dynamic factors are also at play. We're paying attention to secular trends such as AI and electrification, and how these trends affect the demand for semiconductor devices.
We acknowledge that valuations in the global tech sector have risen over the past year and approach the trend with caution. Often, these valuations do not offer the margin of safety that we, as value investors, seek. (The margin of safety for any security is the discount of its market price to what the firm believes is the intrinsic value of that security.) However, we recognize the potential of AI technology to fundamentally transform industries, markets, and even our everyday lives. This potential forms the basis of our optimistic outlook on AI. Therefore, our strategy involves appreciating the long-term structural changes AI is likely to bring, while simultaneously being mindful of the current valuations and the risks they entail.
To start, given that we believe valuations are high across the tech sector, it is important for us to take a more cautious approach. We are finding opportunities in more specific areas rather than across entire sectors or market segments. Our approach is centered on in-depth, bottom-up research, evaluating opportunities on a case-by-case basis. We have identified some promising investments in foundries, Asian memory, and certain IT services. Our current strategy is to focus on idiosyncratic opportunities, aligning with our fundamental, bottom-up approach.