Tech stocks can soar another 25% as reopening boosts digital transformations, Wedbush says

NYSE trader
  • Tech stocks will climb 25% or more over the next year as economic-reopening progress spurs new growth, Wedbush said Tuesday.
  • FAANG, cloud, and cybersecurity names will lead the climb, while Uber and Lyft represent the best reopening plays, they added.
  • Valuation concerns are valid, but secular trends lifting the group will offset such worries, according to Wedbush.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The trends poised to lift all manner of tech stocks are only just beginning, Wedbush analysts Dan Ives and Strecker Backe said.

Equity investors are in the midst of a transition. While tech mega-caps and other growth stocks led the bulk of last year’s rally, expectations for a swift economic reopening recently shifted attention toward companies set to benefit most from a recovery. Value and cyclical names have roared higher and left tech names lagging.

Wedbush doesn’t expect the underperformance to last. Blowout earnings from pandemic-darling Zoom show tech stocks are set for another quarter of “beat and raise” reports, the analysts said. Digital transformations will take hold soon after and lift tech stocks by 25% or more over the next 12 months, they added. 

“As we have witnessed in the cloud, collaboration, cybersecurity, and 5G, this tech party is just getting started with consumer and enterprise-driven demand catalyzing a multi-year growth boom for the tech sector looking ahead,” the team said.

Wedbush sees FAANG, cloud, and cybersecurity stocks leading the charge. Disruptive recovery names like Uber and Lyft are the firm’s favorite reopening plays, as lifted restrictions will likely revive ridership.

The political backdrop also lends itself to continued strength in tech stocks, according to Wedbush. The Biden administration will likely have a softer tone against China and ease tensions in the “Cold Tech War,” the analysts said. The 2020 SolarWinds hack also places a fresh focus on cybersecurity efforts in government, they added.

To be sure, the tech sector still enjoys elevated valuations following last year’s rally. Debate over the stocks’ pricing will continue, but Ives and Backe expect the group to swing higher even in the face of the broader rotation to value.

“We believe the underlying fundamental stories and white-hot growth creates a yellow brick road to an upward bullish trend,” they said.

Read the original article on Business Insider

FAANG stocks tumble as Georgia election result heightens uncertainty for Big Tech

GettyImages 1215901127
FAANG stocks face uncertainty.

  • Georgia’s run-off election results are creating heightened uncertainty for Big Tech names, as the likelihood of regulation from a Democrat-controlled Senate increases.
  • Facebook, Apple, Amazon, Netflix, and Google were all down around 2% in premarket trades.
  • Traders and strategists argue that cyclical and value stocks will benefit from the result, while FAANG names may suffer.
  • Visit Business Insider’s homepage for more stories.

Early trading after the open on Wednesday morning reflected fears among investors that FAANG stocks could be in for a rough ride with Democrats likely to take the Senate. Shares of both Facebook and Apple were down almost 3%, while Amazon and Google parent Alphabet were each down nearly 2%. 

Democrat Raphael Warnock has pulled off a narrow victory in one of the two Senate runoffs, while Jon Ossoff is also leading a close race against Republican candidate David Perdue, with the only votes remaining to be counted from democratic strongholds around Atlanta.

Big tech names were trading lower, as companies like Facebook, Amazon and Google are likely to face greater pressure from Democrats in the Senate, who have promised greater scrutiny of tech giants, according to the New York Times.

The potential for a more aggressive regulatory approach from Democrats should have Big Tech investors ready for underperformance, argues Tom Essaye, founder of Sevens Report.

Essaye said in a note, “in the immediate term, markets are pricing in more stimulus. From an equity standpoint, that means tech underperformance and cyclical/value outperformance. The biggest takeaway from the Democrats win is more power behind the cyclical/value/higher rates trade,” per CNBC.

“Once the market digests this result, a pullback would not shock us at all, as at these levels the market is not pricing in tougher regulation, substantially higher rates or an earnings headwind, and the chances of all three went up overnight.”

On the other hand, Brian Levitt, global market strategist at Invesco said in a note that he expects value stocks and emerging markets to benefit as a result.

Levitt said in a note he believes Democrats may “use their latest opportunity to advance greater fiscal spending to support the economic recovery. In a more-pronounced economic recovery, we would expect an even further rise in Treasury rates, tightening of municipal and corporate bond spreads, weakening of the dollar, and higher performance of value stocks and emerging market equities,” per MarketWatch.

 

Read the original article on Business Insider