The market has seen an uneven recovery this year following 2022’s dismal performance. An analyst at Wedbush offered his thoughts on the trajectory for the tech sector, which has led from the front in the current recovery.
New Safe Havens In Town: Tech stocks have become the “new safety trade,” with big techs being the primary beneficiaries of this dynamic, analyst Daniel Ives said in a note. The analyst pinpointed a few reasons for the deduction that include:
- Combination of massive cash balances and free cash flow potential
- Significant cost cuts that are underway, led by Meta Platforms, Inc. META, Microsoft Corp. MSFT, Amazon, Inc. AMZN, Alphabet, Inc. GOOGL GOOG and others
- Conservative guidance issued during the December-quarter earnings season
- Resilient tech fundamentals that are holding up despite the shaky macro
- Potential for a massive M&A spree in the tech sector, both from financial and strategic buyers
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2 More Reasons To Buy Tech Stocks: Ives noted that large-cap tech and sub-sectors such as cloud and cyber security have more resilient growth than anticipated. Despite budgetary constraints, enterprises have green-lighted projects and deployments, he said.
The analyst expects Microsoft, Amazon and Google to deliver cloud results that meet and likely exceed expectations in the first quarter.
Also, the analyst sees the prospect of the Federal Reserve remaining constrained for the rest of the year in implementing rate hikes. A pause or a rate cuts into the year’s end are likely, given the banking crisis that has been playing out over the past month, he added.
“With a 10-year that has likely peaked, the green light on the risk-on trade is underway and just starting in our opinion with valuations still compelling on the beaten down tech sector,” Ives said.
Favorite Tech Names: Wedbush reiterated its expectations for a 20% upside for tech stocks this year and said it expects the first-quarter earnings season to further calm the Street’s demand fears.
Here’re the firm’s picks from the sector:
- Top tech pick: Apple, Inc. AAPL
- Disruptive tech name: Tesla, Inc. TSLA
- Top cloud picks: Microsoft, MongoDB, Inc. MDB and Datadog, Inc. DDOG
- Cybersecurity picks: Palo Alto Networks, Inc. PANW, Check Point Software Technologies Limited CHKP, CyberArk Software Ltd. CYBR, Tenable Holings, Inc. TENB, Zscaler, Inc. ZS and Crowdstrike Holdings, Inc. CRWD
- The Invesco QQQ Trust QQQ, an exchange-traded fund that tracks 100 large-cap, non-financial tech companies, ended Thursday’s session up 0.67% at $318.06, according to Benzinga Pro data. The Technology Select Sector SPDR Fund XLK added 0.57% to $149.07. These two ETFs have gained 19.6% and 20.1%, respectively, year-to-date.
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