One of the more disruptive themes Fidelity's Elliot Mattingly is keeping an especially close eye on is the long-term trend of companies specializing in pure NAND or flash memory taking market share from firms focused on traditional hard disk or newer solid-state drives, which utilize NAND but sacrifice some of the performance advantages of a pure NAND-based approach.
"I'm particularly interested in firms that either already have or are well-positioned to successfully navigate this transition in order to maintain their competitive standing within the industry," says Mattingly, portfolio manager of Fidelity® Select Tech Hardware Portfolio.
As the former portfolio manager of Fidelity® Select Automotive Portfolio, he draws on his prior experience, noting that he sees more than a few parallels to the early days of electric-vehicle adoption.
In fact, he likens this competitive shift to when traditional auto manufacturers attempted to retrofit internal combustion engine vehicles with EV technology.
While it's true that, yes, "shortcuts" like this will most certainly get a legacy product to market faster, in doing so they also will sacrifice performance, Mattingly contends.
As an investor, he seeks to identify stocks where long-term earnings and cash-flow potential tend to be misunderstood by the broader market, in addition to looking for positive earnings revisions and an improving fundamental story, which often correspond to expanding valuations, in Mattingly's view.
Pure Storage, a sizable holding within the portfolio at the end of July, is an example of a company that has successfully focused solely on storage using pure NAND, according to Mattingly.
Generally speaking, he explains, SDD storage includes additional components—such as special-purpose chips and memory—that run less efficiently than Pure Storage's NAND devices.
"More importantly, however, from a cost standpoint, similar to what we expect to see with EVs, I believe there will be an inevitable tipping point where mass adoption of NAND flash memory gains a competitive foothold over more common hard disk drive storage and doesn't look back," says Mattingly.
Ultimately, as he sees it, this will enable consumers to obtain a superior product at cheaper prices in due time.
Consequently, legacy players like Dell Technologies, a top-10 holding as of July 31, and Hewlett-Packard Enterprise are feeling the competitive pressure from pure NAND flash memory companies like Pure Storage, notes Mattingly.
Given this headwind, the fund's stake in Hewlett-Packard Enterprise was sold in late 2022, Mattingly acknowledges.
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