Apple is one of 15 tech stocks Wedbush analyst Dan Ives likes right now.
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For all this, you can mostly blame the Federal Reserve. Minutes from its monetary policy committee meeting for December, released last week, show the central bank heading for earlier, faster interest rate increases and eventual quantitative tightening. Friday’s U.S. jobs report only underscored expectations that the first rate hike is coming in March.
The valuations of many tech companies—like the stocks favored by Cathie Wood’s ARK funds—rely on the prospect of profits years in the future, and higher long-term Treasury yields typically discount the present value of future cash. That’s not good.
But the most bullish of the tech bulls is still pawing at the dirt. For investors that want to forget the Fed, analyst Dan Ives of broker and investment bank Wedbush has a clear message: look to earnings season ahead.
“The absence of fundamental news for the tech space in this risk-off environment has catalyzed a brutal surge of selling tech names to kick the year off in 2022 as valuation scrutiny remains front and center for investors,” Ives said in a note Sunday.
“With nervousness building and a white-knuckle environment around tech stocks in this tightening Fed backdrop, we view this as the most important upcoming earnings season for tech stocks in many years to turn the tide and derail the negative sentiment,” he added.
Ives said Wall Street needs to see encouraging 2022 guidance as tech companies report earnings over the next month—including signs that the chip shortage is moderating—in order to get back on a bullish track.
“In a nutshell, we expect bullish guidance commentary from tech management teams coming out of the gates in 2022 which will be a key positive catalyst for the tech sector,” he said.
Ives did highlight concerns that 2022 will see headwinds from tougher comparables—in 2021, standout earnings were compared against particularly pandemic-hit 2020—as well as worries about a pull-forward spending dynamic.
“Our recent field checks continue to indicate pronounced strength specifically around software, cyber security, and big data applications into 2022,” the analyst said.
He’s particularly bullish on cloud and software, noting that Wedbush estimates only 43% of workloads are cloud-driven today—a number that’s poised to end 2022 at 55%. Growth should be driven by the likes of Amazon.com (ticker: AMZN) and Microsoft (MSFT), as well as Alphabet (GOOGL), Oracle (ORCL), and IBM (IBM), he said.
Write to Jack Denton at email@example.com