- Tech stocks rallied through the first phase of recovery, and the second bout of improvement is only just beginning, Wedbush analyst Dan Ives said Friday.
- A steady economic bounce-back through 2021 will improve the sector’s fundamentals and growth paths, the analyst said, particularly for firms well-positioned for nationwide reopening.
- This “next chapter” can drive tech stocks another 20% to 25% higher, according to Wedbush.
- Pandemic-driven growth themes around the tech sector “are unprecedented and not comparable to anything I have seen as a tech analyst on the Street for two decades,” Ives added.
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After tech stocks led indexes to record highs and faced outsized selling, the sector is poised for another blockbuster rally, according to Wedbush analyst Dan Ives.
Mega-cap favorites including Amazon, Apple, and Microsoft remain well below their peaks as investors weigh their healthy balance sheets against high-flying valuations. Yet even after tech stocks’ sharp summer rally, the group can swing another 20% to 25% higher through the end of the year and into 2021, the analyst said.
“In a market starved for growth, the secular growth themes around the tech sector are unprecedented and not comparable to anything I have seen as a tech analyst on the Street for two decades,” Ives said in a Friday note.
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The gains are set to arrive alongside a second phase of growth for tech companies, according to the firm. The first period saw cloud, consumer services, cybersecurity, and work-from-home themes rally amid initial lockdowns and shifts to growth stocks. The “next chapter of this recovery” will boost the fundamentals and growth trajectories of tech companies positioned for a gradual economic rebound, Ives said.
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Though some firms with a strict focus on the work-from-home theme may suffer from economic reopening, other tech subsectors are set to benefit. The pandemic represents “a key turning point” for cloud computing, with Microsoft’s Azure arm and Amazon’s AWS business thriving on the upcoming spending spree.
Ives previously expected the share of workloads in the cloud to grow to 55% from 33% by 2022. Those targets could now be reached a full year ahead of schedule, he said Friday, given the industry’s rapid pace of expansion.
Themes outside of the tech sector also serve to benefit growth stocks over the next few months. Fading hopes for a near-term stimulus deal have investors moving away from riskier value names, as do indicators suggesting a slowing pace of economic recovery. President Donald Trump’s COVID-19 diagnosis adds fresh volatility to an already uncertain election season.
Until a clear Election Day winner emerges and volatility dies down, tech investors will do well to stick to the secular growth stories boosted by the pandemic, Ives said.
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