technology stocks have been volatile for some time now and have recently undergone a sell-off. Now some analysts say they have been “dead wrong” to be overly optimistic, particularly in light of the current macro environment. The war in ukrainethe COVID-19 pandemic, a 41-year high inflation rate and the Fed’s decision to raise rates tomorrow act as factors adding to market stress and volatility, including in the tech sector.
“We have been permabulls for the last decade in tech stocks, BUT we have clearly been dead wrong over the past few months in this sell-off. The Fed’s risk aversion/bullish cycle mentality is creating a dislocation for high quality tech names. That is our opinion, others will disagree,” Wedbush Securities analyst Dan Ives tweeted on May 1.
In April, the Nasdaq had its worst monthly performance since October 2008, pushing 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.
Cybersecurity and software can drive some technology investments
In a May 2 research note, Wedbush analysts Ives and John Katsingris said the magnitude and speed of the tech name sell-off has been astounding this year, and it’s a development that is leading to a “tech band.” forked”.
According to Ives and Katsingris, this forked tech ribbon will be pushed higher by software, semis, cybersecurity and product names, like Apple. In terms of the cybersecurity subspace, Wedbush’s picks include Palo Alto, Zscaler, Tenable, Fortine, and CyberArk.
On the other hand, pandemic darlings like Netflix, Zoom, and DocuSign, “will continue to see multiples compress as results soften pandemic highs,” the analysts wrote in the note sent to GOBankingRates.
Cloud computing could present untapped potential for Microsoft, Amazon and others
Wedbush’s top choices in the tech sector remain Microsoft and Apple. “Our unwavering view is that the shift to the cloud is only ~40% complete with a wave of massive digital growth ahead that will benefit Microsoft, Amazon (AWS), Google (GCP), Salesforce and Oracle,” the statement read. note.
At the same time, against a backdrop of a slowdown, some tech names “will be under the microscope for budget dollars and have business models biased towards tight budgets with clearly tougher times ahead,” the analyst note continued. Related to this sentiment, Wedbush indicated that he is downgrading his opinion of DocuSign to Underperform from Neutral. He is also downgrading his outlook on Matterport to Neutral from Outperforming, as well as his outlook on C3.ai, to Neutral from Outperforming.
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, justifying this case in response to a tweet from venture capitalist Bill Gurley.
Gurley wrote: “An entire generation of technology entrepreneurs and investors built their full views on valuation during the second half of an incredible 13-year bull run. The ‘unlearning’ process can be painful, surprising and unsettling for many. I anticipate denial.”
Bezos tweeted back: “Bill is hands down one of the smartest people I know and always worth listening to. Most people dramatically underestimate how extraordinary this lockdown is. Those things are unstoppable… until they’re not. The markets teach. The lessons can be painful.”
On April 29, Amazon shares fell 14% a day after the company gave a disappointing earnings and revenue forecast for the June quarter, Barron’s reported.
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This article originally appeared on GOBankingRates.com: Tech market crash could make Amazon and Microsoft shares save thanks to cloud computing and cybersecurity demand