The tech sell-off is not the second dot-com bubble – it’s a “buying opportunity” for the right stocks, according to Wedbush Securities’ Dan Ives. “We view this historic sell-off as more of a generational buying opportunity for the right tech names / winners in 2023 and 2024 rather than a time to throw in the towel on the tech sector with a peeling on effect we are seeing take place on the Street today, “Ives wrote in a note on Friday. “Even our customer and IT conversations this week further enforce our positive view of cyber security and cloud spending in this nervous macro.” For some investors, the massive underperformance in tech stocks this year casts doubt on the potential of the sector from here. The Nasdaq Composite is down about 25% year to date, as rising interest rates and supply chain challenges have steered investors away from growth stocks. Many former high-flying names are down as much as 70% to 80%, Ives said. However, the analyst urged investors not to judge all tech stocks in the same way. While weaker tech outfits have disappeared in the past as a result of a downturn, other names have emerged as clear winners. Picking the winners and losers Investors should start picking out the winners and losers of the next tech cycle, Ives said. The analyst believes valuations for high-quality growth stocks are “very compelling” for investors with a time horizon out two to three years or longer – especially as venture capital firms, private equity and family offices are poised to commit more than $ 1 trillion to the technology sector. Companies in macro-cloud computing, cybersecurity, electric vehicles and 5G smartphones would benefit from the next iteration of a tech growth cycle, Ives said. Wedbush Securities highlighted several picks from its playbook that will benefit from these trends. Cloud computing names include Amazon, Google, Oracle and Adobe. Cybersecurity outfits set to thrive include Palo Alto Networks, Check Point and Zscaler. Top electric vehicle names include Tesla, Li-Cycle and XOS Trucks. The research firm’s top large cap picks were Apple, Microsoft and Tesla. To be sure, both Apple and Tesla will have to work through Covid-related lockdowns in China in the near term, but valuations for both companies look compelling based on the 2024 outlook, Ives said. Meanwhile, investors should steer clear of tech firms that focus on e-commerce or real estate, or that have benefited heavily from the work-from-home trend, the analyst said. Investors should also stay away from companies with bad management teams. “This is a painful reset of tech stocks and valuations with opportunities (and train wrecks as well of course) abound for the right names with the right end markets,” Ives wrote.
Traders on the floor of the NYSE, May 11, 2022.
The tech sell-off is not the second dot-com bubble – it’s a “buying opportunity” for the right stocks, according to Wedbush Securities’ Dan Ives.