As tech earnings taper off, Wedbush analyst Daniel Ives offered his take on how the reporting season shaped up for the sector.
Better-than-feared Earnings: The June quarter earnings season was a major victory for tech bulls, Ives said. Enterprise spending, cloud-driven budgets, consumer product/e-commerce demand, and even digital advertising were "much better than feared," the analyst said.
FAANGs and Microsoft Corporation MSFT reported solid earnings, the analyst noted. This key barometer of consumer and enterprise spending, the analyst said, was a core catalyst for tech stocks advancing over the past month.
Tech earnings and guidance were relatively healthy, with some cautionary signs, belying expectations of economists, “tech perma-bears” and market pundits, the analyst said.
Clearly, it was not the “guidance Armageddon” expected by tech skeptics, he added.
Read Benzinga's preview of the upcoming week's earnings
What Lies Ahead: Ives sees a “bifurcated tech tape” ahead. Companies such as Snap, Inc. SNAP and ServiceNow, Inc. NOW, according to the analyst, will likely see incremental headwinds during the “recession-like” macro period.
The analyst is also negative about smaller tech companies with “less stable business models and unproven moats.” These companies will “struggle mightily” over the coming quarters and multiples will continue to compress for many unprofitable tech names with choppy execution, he added.
Ives, however, said fourth industrial revolution tech trends aren’t likely to be impacted by the slower near-term period of growth over the next six to nine months. Wedbush remains bullish on tech stocks into the second half of the year, he added.
Wedbush’s Top 3 Tech Stock Picks Into Year-End:
- Microsoft Corporation MSFT: Redmond is a beneficiary of strong Azure growth trajectory.
- Apple, Inc. AAPL: As China and supply issues resolve, the company remains laser-focused on the upcoming iPhone 14 model.
- Palo Alto Networks, Inc. PANW: The company stands to capitalize on the multi-year tidal wave of cybersecurity enterprise spending.
Tech Stock Rating/Price Targets:
- Microsoft: Outperform/$320
- Apple: Outperform/$200
- Palo Alto: Outperform/$580
The Tech Stock Price Action: The Technology Select Sector SPDR Fund XLK closed Friday’s session down 0.23% at $147.02, according to Benzinga Pro data.
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