Tech has had a strong start to 2023. That bodes well for the rest of the year.
Galeanu Mihai
Tech stocks have had a strong start to 2023, buoyed by optimism that the Federal Reserve is close to the end of its rate hike cycle, relief over the U.S. debt ceiling and better-than-expected quarterly results from stalwarts such as Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG) (GOOGL) and others.
With that in mind, it's likely that tech stocks will continue to post strong returns for the remainder of the year, Wedbush Securities said.
In an investor note, analyst Dan Ives noted there is a rotation away from financial stocks into tech, which should create a "safety trade" tailwind for investors.
"While the tech skeptics will continue to lay their cards on valuations, Fed narrative, next shoe to drop thesis (debt ceiling the latest fear), and fire in a crowded theater rinse and repeat thinking: we believe overall the set-up is for the tech sector to be up another 10%-12% the rest of the year," Ives wrote in an investor note.
Ives added that the larger tech companies - in particular, Microsoft (MSFT), Apple (AAPL), Google (GOOG) (GOOGL) and Meta (NASDAQ:META) - are aided by long-term trends that are still growing: cloud computing, solid iPhone demand across the globe and digital advertising, while also benefiting from the semiconductor industry recovery.
All of these themes line up to create a "resilient tech trade" that is likely to outperform the broader markets, amid fears of a global slowdown or worse.
Ives added that Apple's (AAPL) iPhone performance is "noteworthy" given it's the most consumer focused tech company. In its most recent quarter, Apple (AAPL) continued to expand its installed base and set new quarterly records in several emerging markets.
Apple (AAPL) is widely expected to introduce its mixed reality headset at next month's developers conference and introduce the next iPhone in the fall.
In addition, Ives believes companies that report "off quarter" results, such as Salesforce (CRM), Palo Alto Networks (PANW), Zscaler (ZS) and Crowdstrike (CRWD), should give another jolt of confidence to investors, given their quarterly results extend further out than the traditional three month time periods.
Despite the increase in confidence, it's not all fun and games for tech companies, as Ives said "weak hands" will continue to be exposed, specifically mentioning Snap (SNAP), Lyft (LYFT) and Cloudflare (NET) among others amid the weak economy.
Nonetheless, Ives said it's likely that strong will "get stronger" as enterprise and consumer spending are holding up well, with the Fed likely at the end of its rate hiking cycle.
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