INVESTMENT OUTLOOK FOR 2023 - 23 - corporate spending on information technology (IT). Gartner forecasts 5% growth in IT spending in 2023. Cybersecurity is one area that we expect to hold up well. 3. Semiconductor demand may prove resilient in end-markets including automotive (where electronic content is increasing and inventories remain low) and datacentre (depending on the resiliency of spending to support cloud and AI initiatives). 4. Valuations look compelling. We estimate the average enterprise value to next- twelve-month estimated sales ratio for North American software stocks to be nearly back to 6x. That is close to the 2013-2018 level and 32% below the most recent five-year average (see Exhibit 1). 5. Most semiconductor stocks are trading near (or below) our worst-case scenarios, as investors have priced in inventory corrections across all end-markets. 6. Longer duration real yields have arguably peaked. So even as the US Federal Reserve continues to raise rates, valuations should not necessarily decline further. Additionally, growth will again become scarce, likely leading investors to gravitate back towards quality growth. IT spending and semiconductor demand should prove resilient, while valuations look compelling What are the risks?: 1. Real interest rates could rise further, which would have a negative impact on the valuation of long duration assets. 2. Weakness in consumer spending on personal computers and low-end smartphones could spread to commercial and enterprise customers and other end-markets. Exhibit 1: Software stock valuations have improved dramatically Average EV-NTM sales ratio of North American software stocks x x 14 14 13 EV/Sales 13 12 5-yr trailing average 12 11 2013-2019 average 11 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Data as at 25 Oct. 2022. Sources: FactSet, BNP Paribas Asset Management.