"Thus far the dreaded cut in enterprise spending is more bark than bite."
From a note to Wedbush clients that landed on my desktop Tuesday:
This is the most complex Rubik's Cube macro for investors to navigate in many decades with the combination of skyrocketing inflation coming out of a once in a 100 year pandemic, Fed chasing the curve in hawk mode, horrific Ukraine war, and zero Covid issues in China further crimping a brutal Asia supply chain logjam. As such, tech stocks have seen a brutal year so far with red screens on a daily basis as the Street anticipates the "R word" and a softening of earnings/growth heading into 2023.
However, over the last few weeks in a surprise to the Street fundamentals on enterprise tech are holding up much better than expected with earnings reports from bellwethers Nvidia, Palo Alto, Zscaler showing demand on pockets of tech are still strong with no major cracks in the armor yet.
Supply chain improving = positive for Apple, chips. Over the last week including this weekend we are seeing from our checks a clear improvement in the supply chain in Asia for names like Apple and other chip players which is a much needed positive heading into 2H. While spots around zero Covid are popping up in China, we are seeing a strong production trajectory heading into June for stalwart names such as Apple (good for iPhone 14 ramp) and Tesla which are key barometers for the overall market on this painful hot button supply chain issue which has been a black cloud over the tech/automotive sector the last 6 months.
Cloud and cyber security holding up well despite rampant fears. Our enterprise spending checks in the US and Europe on cloud, cyber security, and big data areas remain relatively firm with the Street already factoring in negative 2023 whisper numbers ~10% below current consensus expectations even though thus far the dreaded cut in enterprise spending is more bark than bite...
Bifurcated tech tape ahead. We continue to view this bifurcated tech tape will be driven higher by software, semis, cyber security, and product-driven names (Apple) as part of this digital transformation, while the WFH poster children in the e-commerce world will continue to see multiples compress as results soften off pandemic highs as seen by the recent Snap debacle. Our top picks in the tech sector remain Microsoft and Apple with our favorite sub-sector the cyber security space with our top picks Palo Alto, Zscaler, Tenable, Fortinet, and CyberArk. Our unwavering view is that the shift to the cloud is only ~40% complete with a massive digital growth wave ahead that will benefit MSFT, Amazon (AWS), Google (GCP), Salesforce, and Oracle.
My take: Who are you going to believe, DigiTimes or Dan Ives?