“Our view in a nutshell is that tech stocks have overcorrected.”
From a note to Wedbush clients that landed on my desktop Monday:
In what has been an absolutely brutal year for the market and especially tech stocks, the path of least resistance for investors is to stay away from any risk assets till the dark economic storm clouds clear. We clearly could be looking at a very volatile few months still ahead as the Street tries to get a gauge if inflation has started to finally peak and what type of recession now likely lies ahead into 2023… While consumer-facing tech and WFH poster childs are seeing clear softening and demand starting to dry up in the field especially around digital advertising; on the other hand enterprise cloud, cyber security, and high priority pockets of IT budgets are holding up particularly well based on our recent checks.
How to navigate a Rubik’s Cube investing landscape? [W]e have stress tested our enterprise models and believe in a worst case scenario Street numbers for 2023 come down by less than 10% from today’s expectations, while in a base case scenario they are down ~5% from today’s numbers. Importantly, we believe the Street is already baking in a mild recession into current tech stocks and the risk-reward set up (outside of a prolonged, harsh recession) is favorable for our top enterprise plays.
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 e-commerce world/digital ad plays will continue to see multiples compress with fears around soft 2Q results around the corner. Our top picks in the tech sector remain Microsoft, Salesforce, and Apple with our favorite sub-sector the cyber security space with our favorite 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 Microsoft, Amazon (AWS), Google (GCP), and Oracle.
Our view in a nutshell is that tech stocks have overcorrected and especially cloud/cyber names are way oversold at current levels for investors willing to own these names on the other side on this storm into 2023.
My take: From Ives’ lips to the Mr. Market’s ears.