"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.