Apple, Microsoft and Palo Alto Networks are Daniel Ives' 'tech stocks to own'

"Smaller tech players with less stable business models and unproven moats will struggle mightily."

From a note to Wedbush clients that landed on my desktop Sunday:

Smaller tech players with less stable business models and unproven moats will struggle mightily over the coming quarters and multiples will continue to compress for many unprofitable tech names with choppy execution. HOWEVER, we believe the 4th Industrial Revolution tech trends are not going away due to this slower near-term period of growth over the next 6-9 months and we firmly stay bullish on tech stocks into the second half of the year with Microsoft, Apple, and Palo Alto our favorite tech stocks to own into year-end.

Our Top 3 Tech Picks Into Year-End:

MSFT: Our checks on Azure growth trajectory remain strong heading into FY23 and we believe Nadella & Co. are still in the middle innings of transforming this cloud behemoth with less than 50% of workloads still on the cloud today. We maintain our OUTPERFORM rating and $320 price target.

AAPL: With China issues and supply chain as a “peak issue” in the rear view mirror for now, Cook & Co. laser focus their sights on the iPhone 14 production/demand cycle for the September launch of this next key iPhone model. We estimate roughly 225 million Apple customers have not upgraded their iPhones in 3.5 years, creating a strong pent-up demand story with iPhone 14 despite the darkening global macro backdrop. We maintain our OUTPERFORM rating and $200 price target.

PANW: The shift to cloud is a massive tailwind for PANW as the company is in the right spot at the right time to benefit from this multi-year tidal wave of cyber security enterprise spending, despite macro jitters right now clouding the Street's view of the stock/sector. We believe PANW is just starting to tap into the massive cloud upgrade opportunities within its installed base as more customers head down this spending path into 2023 and beyond. We maintain our OUTPERFORM rating and $580 price target.

My take: Ives has been singing the "hundreds of millions of iPhones not upgraded" song for as long as I can remember, and he can keep singing as long as there are new phones worth upgrading to.

9 Comments

  1. There’s always the shutdown of 3G networks, build out of 5G and a robust used phone market to stoke upgrades. iPad production should ramp up to meet demand with the chip shortages morphing into a possible glut.
    I really don’t get the predictions of a semiconductor oversupply but the notion is driving down the likes of TSM, INTC and Nvidia. Intel and Taiwan Semi slowed new plant development in OH & AZ because the CHIP act was delayed. Those government incentives are dicey proposals.

    1
    August 9, 2022
  2. Bart Yee said:
    Top 3 into year end, does that imply year end price target or 12 month?

    MSFT target $320, ~14.3% upside, Market Cap $2.09T, PE 29.05

    PANW target $580, ~15.8% upside, earning in 13 days, Market Cap $50.3B PE in 2021 = -200, yes -200!, forward PE = -686
    EPS Q1 was -$0.61, consensus $-0.40.
    Net income Jan 2021 $-93M, April 2022 $-73M, I guess less losses so they are getting better?

    AAPL Target $200, ~21% upside, Market Cap $2.65T (note Market cap gap to MSFT has grown to $560B or about 87% of Berkshire Hathaway, #7 company by market cap). PE 27.25.

    2
    August 9, 2022
    • Brian Loftus said:
      Given the P/E above, I had to look up PAN. They are trading a P/E based on an non-GAAP income of about 67. The GAAP loss is mostly driven by share based compensation the details of which I have not studied.

      0
      August 9, 2022
  3. Jerry Doyle said:
    “…. My take: Ives has been singing the ‘hundreds of millions of iPhones not upgraded’ song for as long as I can remember, and he can keep singing as long as there are new phones worth upgrading to.”

    The reason Dan can sing that tune is because of the continued burgeoning population of iPhone users, well north now of 1,000,000,000. It doesn’t take a rocket scientist to figure that continued growth of iOS users with their devices become one wave after another that just keep rolling into the Apple coffers. Additionally, remember that evidence is abound now that iOS is gaining ever increasing Android users.

    I am excited about the coming quarters and especially the next several years of Apple’s continued growth in AR/VR, Health & Wellness, semiconductors, Apple Car & iOS auto integration, Services and Fintech. Having said that, I also have an wide-eye on China’s continued military drills on Taiwan that are ramping-up as I write and becoming more expansive indicating a possible invasion by the China Mainland to take back forcefully its claim on Taiwan. I welcome PED having Dan Ives meet with Apple 3.0 and for part of that session to deal with the ramifications of such an invasion negatively affecting Apple.

    2
    August 9, 2022
  4. Gregg Thurman said:
    he can keep singing as long as there are new phones worth upgrading to.

    I was hot to trot to upgrade to iPhone 14 next month, until the Apple Store swapped out my malfunctioning XS Max.

    The performance increase has been significant, leading me to question the need to upgrade. I don’t take that many photos, and of those I do the quality is far better than I need. I don’t do that much surfing on my iPhone, preferring to use my iPad (which is a 5G Pro).

    Essentially I use my iPhone to make calls and to check email and messages. Every now and then I run EKG, check the temperature, stocks and my rings. A faster, more powerful processor isn’t going to materially improve my experience.

    I’m at a point where upgrading is dependent on a new, must have, use case requiring better silicon. I’m looking forward to that day but don’t see it as of today.

    0
    August 9, 2022
    • Steven Philips said:
      That probably applies to me as well, but I just like shiny new toys!
      Look! Squirrel! 🙂

      2
      August 9, 2022
    • John Butt said:
      I too like the toys, but the iPhone 13 pro camera is quite an upgrade. Since the cost of upgrading is low (resale or gift value is high), I’m considering the 14

      2
      August 9, 2022
    • Bart Yee said:
      @Gregg I’m glad you got your XS issue sorted out. I have a XS purchased in Jan. 2019 and have been well pleased with it…BUT it is showing signs of problems.

      1) At now 3.5 years old, battery capacity is down to 85%, still able to deliver peak charge, but day life is shorter and faster depletion, especially with video media consumption or intensive web work.

      2) Connectivity to WiFi and 4G LTE degrades over time in my home at distance from router and cell tower, and I have to Force Restart to get it working better. IMO, this is a problem with the Intel modem used then in stark contrast to the superb connectivity of my 2020 iPad 8 with a non-Intel chip (but not Qualcomm either since it’s WiFi only).

      3. Call quality and overall volume is good but not great compared to newer models. I’m on AT&T which could be part of that issue.

      4. Camera and video quality is good but compared with the iPhone 13’s, there’s a world of difference, especially in low light, clarity, and resolution. I was amazed at even an iPhone 13 Mini’s camera vs mine.

      5) I sometimes get eye strain with the XS display and believe it’s related to the particular OLED display and driver system. I believe the newest displays are much better.

      So I’d recommend checking out the iPhone 14 when available. Your iPhone XS having recently been repaired or swapped out probably has the highest trade in value for condition vs mine. Of course, we could wait until the dividend hits our accounts (now or November but then you’d have to wait for delivery into 2024) to let Apple PAY US to upgrade.

      Choices! Good luck!

      1
      August 10, 2022
  5. Michael Goldfeder said:
    I have a friend who is a live concert goer and and might hold the world record for concerts he has attended. I’ll explain the parallel with upgrading to the next iPhone for those that don’t understand this rational when their current iPhone model is working just great.

    Bruce Springsteen was in town for four (4) shows. My buddy bought tickets to all 4! When I asked him why he said: “Because each show is an entirely new experience!” In addition, outside of a few main songs such as: “Born to Run” (BTR); and “Born in the USA” that are played at every show, many songs are not repeated at each show.

    Same rational applies to those folks who can’t wait to buy the next iPhone! Status, devotion, first on the block, etc., etc., etc. It just has a following that keeps on growing and expanding its reach.

    1
    August 9, 2022

Leave a Reply