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Tech stocks have been volatile for some time now and have recently suffered a massive selloff. Now, some analysts say they have been “dead wrong” about being overly bullish, particularly in light of the current macro environment. The war in Ukraine, the COVID-19 pandemic, a 41-year-high rate of inflation and tomorrow’s Fed rate hike decision all act as factors increasing market stress and volatility, including in the tech sector.
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“We have been permabulls for the last decade on tech stocks, BUT clearly we have been dead wrong over the last few months in this massive sell-off. The Fed hike cycle / risk-off mentality is creating a dislocation for high quality tech names. That’s our view, others will disagree, ”Wedbush Securities analyst Dan Ives tweeted on May 1.
In April, the Nasdaq had its worst monthly performance since Oct. 2008, bringing its losses for the month to more than 13%, according to The Wall Street Journal. The WSJ added that the index is down 21% in 2022, its worst start to a year on record.
Cyber Security and Software May Bolster Some Tech Investment
In a May 2 research note, Wedbush analysts Ives and John Katsingris said that the magnitude and velocity of the sell-off in tech names has been surprising this year – and is a situation which is leading to a “bifurcated tech tape.”
According to Ives and Katsingris, this bifurcated tech tape will be driven higher by software, semis, cyber security and product-driven names, such as Apple. In terms of sub-space cyber security, Wedbush picks include Palo Alto, Zscaler, Tenable, Fortine and CyberArk.
On the other hand, pandemic darlings such as Netflix, Zoom and DocuSign, “will continue to see multiple compress as results soften off pandemic highs,” the analysts wrote in the note sent to GOBankingRates.
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Cloud Computing Could Present Untapped Potential for Microsoft, Amazon, and Others
Wedbush’s top picks in the tech sector remain Microsoft and Apple. “Our unwavering view is that the shift to the cloud is only ~ 40% complete with a massive digital growth wave ahead that will benefit Microsoft, Amazon (AWS), Google (GCP), Salesforce, and Oracle,” the note reads.
At the same time, against a slowing backdrop, some tech names “will be under the microscope for budget dollars and have business models skewed towards flush budgets with clearly tougher times ahead,” the analysts’ note continued. In relation to this sentiment, Wedbush indicated it is downgrading its opinion of DocuSign to Underperform from Neutral. It is also downgrading its outlook on Matterport to Neutral from Outperform – as well as it’s forecast for C3.ai, to Neutral from Outperform.
Jeff Bezos Weighs In With What Could Be A Warning
On April 30, Amazon founder Jeff Bezos seemed to agree with the notion that many tech stocks are overvalued – making this case in a reply to a tweet by venture capitalist Bill Gurley.
Gurley wrote: “An entire generation of entrepreneurs & tech investors built their entire prospects on valuation during the second half of an amazing 13-year bull market run. The ‘unlearning’ process could be painful, surprising, & unsettling to many. I anticipate denial. ”
Bezos tweeted back: “Bill is without a doubt one of the smartest people I know and always worth listening to. Most people dramatically underestimate the remarkableness of this bull run. Such things are unstoppable… until they aren’t. Markets teach. The lessons can be painful. ”
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On April 29, Amazon stock tumbled 14% a day after the company gave a disappointing profit and revenue forecast for the June quarter, Barron’s reported.
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