Next year could be another strong year for tech stocks as the economy starts to grow again with the distribution of a COVID vaccine, according to analysts Daniel Ives and Strecker Backe at Wedbush.
While they acknowledge that some tech stocks have already become highly valued — indeed, the number of downgrades of tech stocks on valuation concerns has risen dramatically in recent weeks — the two view this as a “re-rating paradigm” as tech investors hunt for growth.
With a vaccine rolling out and some form of normalization expected to return by the spring or summer, the two are most positive on Uber (UBER) – Get Report, Lyft (LYFT) – Get Report, Tesla (TSLA) – Get Report, Cerence (CRNC) – Get Report and Nuance (NUAN) – Get Report, the latter based on the potential for larger health-care deals occurring.
The two have been bullish on tech stocks since March, arguing that a first phase favored cloud/consumer services such as Apple (AAPL) – Get Report, Amazon (AMZN) – Get Report, Netflix (NFLX) – Get Report and Disney (DIS) – Get Report; cybersecurity plays such as Zcaler (ZS) – Get Report, Crowdstrike (CRWD) – Get Report and Okta (OKTA) – Get Report, and working-from-home stocks such as Zoom Video (ZM) – Get Report, Docusign (DOCU) – Get Report and Slack (WORK) – Get Report.
Now they say we’re entering a second phase as the economic rebound supports the “fundamental and growth trajectories of well-positioned tech stocks.”
That points to favoring working-from-home stocks, FAANG names and cloud stocks for at least the next six to 12 months, they say, with a fundamental growth driver remaining especially strong around cloud and cybersecurity names as a result of the massive SolarWinds (SWI) – Get Report hack.
Roughly 35% of workloads are now on the cloud but that number is projected to hit 55% by 2022, according to Ives and Backe.
Finally, the strongest tech plays on an economic recovery are likely to be Uber and Lyft as a return to the office and travel in 2021 should improve both their businesses dramatically and result in these stocks moving much higher in 2021.