Tech investors haven’t had a good start to 2022: The technology-heavy Nasdaq Composite has fallen 4.5% since New Year’s Eve, and the decline was set to continue on Monday.
You can mostly blame the Federal Reserve for all of this. Minutes of its Monetary Policy Committee meeting for December, released last week, show the central bank moving earlier, faster interest rate hikes and eventual quantitative tightening. Friday’s US jobs report only underscored expectations that the first rate hike is coming in March.
Valuations of many tech companies—such as stocks favoring Kathy Wood’s ARK funds—rely on the potential for years of future profits, and the high long-term Treasury yield typically discounts the present value of future cash. This is not good.
But the most bullish of technical bulls is still groping the dirt. For investors who want to forget the Fed, Dan Ives, an analyst with broker and investment bank Wedbush, has a clear message: Look forward to earnings season ahead.
“The absence of fundamental news for the tech space in this risk-averse environment has catalysed a brutal surge in sales of tech names to close out the year in 2022, as valuation scrutiny unfolds,” Ives said in a note on Sunday. and remains the center for investors.”
He said, “In this tight Fed backdrop with panic building around tech stocks and a white-knuckle environment, we’re looking to turn the tide and ward off negative sentiment for the most important upcoming earnings season for tech stocks in many years.” see as.”
Ives said Wall Street needs to encourage 2022 guidance as tech companies report earnings next month — including signs that chip shortages are looming — in order to get back on a fast track .
“In short, we expect rapid guidance commentary from the technical management teams coming out of the gates in 2022 that will be a significant positive catalyst for the tech sector,” he said.
Ives highlighted concerns that 2022 will see headwinds from tough comparisons — in 2021, the standout earnings comparisons were particularly tempered by pandemic-hit 2020 as well as concerns about a pull-forward spending dynamic.
“Our recent field checks indicate clear strength, particularly around software, cyber security, and big data applications in 2022,” the analyst said.
He’s particularly bullish on cloud and software, noting that Wedbush estimates that only 43% of workloads today are cloud-powered—a number poised to end 2022 at 55%. He said development should be driven by Amazon.com (ticker: AMZN) and Microsoft (MSFT), as well as Alphabet (GOOGL), Oracle (ORCL), and IBM (IBM).
Ives’ favorite large-cap stocks are Apple (AAPL) and Microsoft, with Zscaler (ZS), Palo Alto Networks (PANW), Tenable (TENB), and CyberArk (CYBR) in their cybersecurity.
In big data, Wedbush experts prefer Wejo (WEJO) and Planet Labs (PL), and say those looking to capitalize on the Metaverse theme should look to Matterport (MTTR).
When it comes to value, Ives likes Pegasystems (PEGA), Progress Software (PRGS), Check Point Software Technologies (CHKP), Consensus Cloud Solutions (CCSI), NICE Systems (NICE), and Ziff Davis (ZD) .
Write to Jack Denton at [email protected]