Fed Statement Very Bullish for Tech Stocks, Focus on Cloud and Cyber Stocks - Wedbush
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Wedbush analyst Daniel Ives says Fed’s latest statement on monetary policy is an "all clear for risk-on assets.” He sees the statement as “very bullish” that will provide tech stocks with fuel to continue surging higher.
“The fear of a more hawkish Fed and rates rising sooner we believe has been a 10%+ overhang on tech stocks this year as multiples compressed and we saw a curtailing of risk assets led by tech and EV stocks. Taking a step back, our bullish view of tech stocks over the years is predicated on our multi-year thesis that the digital transformation story across the consumer and enterprise ecosystem is still in the early innings of playing out in what we characterize as a $2 trillion market opportunity for the next decade. Of course there was a clear massive pull forward in demand for cloud, e-commerce, cyber security, and facets of the technology ecosystem over the last 16 months during the pandemic, HOWEVER we believe massive growth (and further multiple expansion) is still on the horizon with tech stocks and FAANG names underestimating this surge of demand for the next 2-3 years,” the analyst said in a note sent to clients.
The most recent guidance and Q1 results are “another positive catalyst” for tech stocks that are likely to result in further multiple expansion.
“Heading into 2H we would own the secular winners in FAANG (Apple remains our favorite), cloud (MSFT, DOCU, NICE, PEGA favorites), cyber security, and 5G looking ahead.”
Ives projects gains of about 15% in the second half of the year on these good news. He urges investors to focus on cloud and cyber stocks in the tech space.
“We importantly note that only 40% of workloads are currently on the cloud today and poised to hit 70% by 2025, with cyber security threats growing by the day as evidenced again with the recent Colonial Pipeline ransomware attack that forced shutdown of the largest fuel pipeline in the US. We believe there is a $200 billion dollar growth opportunity in cloud security alone “up for grabs” over the next few years for those vendors that have the solution sets to protect critical cloud deployments from growing threats/attacks. In a nutshell, we believe the fundamental drivers and sweet spot of cloud demand continue to give us high conviction in owning the secular winners in the burgeoning cyber security sector and also expect a surge of M&A to take place within this sector from both strategic/financial players,” Ives adds.
He outlines Varonis Systems (NASDAQ: VRNS), Zscaler (NASDAQ: ZS), Telos (NASDAQ: TLS), Sailpoint (NASDAQ: SAIL), Tenable (NASDAQ: TENB), Palo Alto Networks (NASDAQ: PANW), and Fortinet (NASDAQ: FTNT) as top ideas in these sectors.
“At the core of the tech bear thesis, high flying tech stocks are crowded names with broken technicals and no traditional valuation support. We view this trading dynamic so far this year as just a temporary valuation digestion period for tech stocks in their early stages of growth and a short term sell-off in the midst of a multi-year bull rally we expect to go well into 2022. The tech bull cycle will continue in our opinion its upward move in 2H2021/2022 given the scarcity of growth names/winners in this market looking ahead on the heels of the 4th Industrial Revolution playing out among enterprises/consumers,” he concludes.
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