Thursday saw an across-the-board sell-off in tech stocks that dragged the broader market lower, and the downtrend is continuing in Friday's session.
An analyst at Wedbush shrugged off the development as a blip on the radar.
A Tech Bubble? The tech sector has been resilient even in the face of the COVID-19 pandemic, analyst Daniel Ives said in a note.
Notwithstanding the temporary setback, tech stocks could still go higher by an incremental 20-25%, the analyst said.
Despite Street-wide chatter of a tech bubble burst and stretched valuations, Wedbush continues to believe the secular growth themes around the tech sector are unprecedented, he said.
Pullback Presents Opportunities: The COVID-19 backdrop is likely to accelerate growth stories by one to two years in some cases, Ives said.
"While much good news has been baked into these names, we view pullbacks like today as opportunities to own the secular growth stories in cloud, cyber security, and tech stalwart FAANG names," the analyst said.
Wedbush's Bullish Tech Thesis: Wedbush's bullish view of tech stocks is predicated on a two-phase thesis, Ives said.
The analyst said the following companies have been instrumental in helping consumers and corporations navigate a turbulent period:
- Microsoft Corporation MSFT
- Amazon.com, Inc. AMZN
- Alphabet Inc GOOGL GOOG
- Apple Inc. AAPL
- Netflix Inc NFLX
- Walt Disney Co DIS
- Zscaler Inc ZS
- Palo Alto Networks Inc PANW
- Fortinet Inc FTNT
- Zoom Video Communications Inc ZM
- Docusign Inc DOCU
- Citrix Systems, Inc. CTXS
- Slack Technologies Inc WORK
This dynamic is being largely reflected in the stocks, the analyst said.
A second phase is imminent, as the economy is likely to rebound in the second half of 2020 and 2021, he said.
This phase will likely supercharge the fundamentals and growth trajectories of well-positioned tech, Ives said.
The second phase will lead to Street numbers moving higher and a further re-rating of tech stocks, the analyst said.
Apple, Microsoft As Economic Rebound Names: Apple and Microsoft are likely to benefit the most from the economic recovery, according to Wedbush.
Apple remains the firm's top 5G play and consumer tech recovery name as the lockdown eases and consumer spending looks to spike in the second half, Ives said.
The analyst said his favorite cloud name is Microsoft when looking out over the next six to 12 months.
Microsoft will continue to be a major beneficiary of the cloud shift and work-from-home dynamic, with its flagship Azure/Office 365 franchise set up for a further boost over the coming years, he said.
Photo courtesy of Apple.
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