Microsoft, Snowflake, MongoDb favored at Citi as firm cuts Amplitude, others
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Microsoft (NASDAQ:MSFT), Snowflake (NYSE:SNOW) and MongoDB (NASDAQ:MDB) were listed as Citi's favorite stocks in the enterprise application software space on Thursday, but cautioned there may be a bumpy start to 2023.
Analyst Tyler Radke noted there could be some pain in the first-half of the year, with a mild recession and "moderate landing" as the most likely scenarios stemming from the Federal Reserve's interest rate hikes. As such, companies are likely to slow increases in their IT budgets and there could be "increased" macro uncertainty, along with difficult year-over-year comparisons.
However, by the second-half there should be more certainty on the state of the economy, falling interest rates and easier comparisons, which could results in "accelerated growth for many," Radke posited.
"While challenges will prevail for growth-at-all-costs names, we believe companies that show good sales efficiency with large market opportunities that donât require evangelical sales motions are among the best positioned," Radke wrote in a note to clients.
MongoDB (MDB) and Snowflake (SNOW) are favored because they are seen as the "most positively exposed to resilient data/analytics budgets." Microsoft (MSFT) could benefit as a recent CIO survey showed high prioritization in cloud optimization.
In addition, Citi also downgraded several other enterprise application software companies, including Amplitude (NASDAQ:AMPL),CS Disco (LAW), Similarweb (SMWB) and Walkme (WKME) to neutral, citing their vulnerability to weaker IT budgets.
Microsoft (MSFT) integrating ChatGPT into its products and services could be a "game changer" investment firm Wedbush said on Wednesday.