Software/Cloud to Lead a Strong Year-End Rally for Tech Stocks, Wedbush Sees Up To 10% Upside

Wedbush analyst Dan Ives believes that messages from Fed members and out of Jackson Hole are “very bullish for tech stocks with an "all clear for risk-on assets" in the near-term led by tech stocks.”

Ives adds that the further multiple expansion and strong fundamentals will lead to a 7% to 10% rally in the tech sector until the end of the year.

“The fear of a more hawkish Fed/Powell and rates rising sooner has been a lingering worry for the Street that threatened to put the pause on the ongoing tech and market rally in our opinion. 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 18 months during the pandemic, HOWEVER we believe massive growth 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 client note.

Ives expects software and cloud stocks to lead the wider tech sector higher, especially in the area of cyber security amid growing fears that more high-profile attacks will take place.

“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 high profile Colonial Pipeline ransomware attack that forced shutdown of the largest fuel pipeline in the US. We believe there is a $300 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. 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. Our favorite cyber security names in our coverage remain VRNS, ZS, TLS, SAIL, CYBR, TENB, PANW, and FTNT,” Ives further writes.

Overall, Ives urges investors to own the secular winners in FAANG (Apple the Top Pick), cloud (MSFT, DOCU, NICE, PEGA favorites), and cyber security.

You May Also Be Interested In

• EnLink Midstream, LLC (ENLC) PT Raised to $16 at Citi, Opens 30-Day Upside Catalyst Watch
• Microsoft (MSFT) PT Raised to $475 at CFRA
• Evercore ISI Starts NVIDIA (NVDA) at Outperform