|Tech stocks can soar another 25% as reopening boosts digital transformations, Wedbush says|
Mar. 2, 2021, 09:15 AM
Tech stocks will climb 25% or more over the next year as economic-reopening progress spurs new growth, Wedbush said Tuesday.FAANG, cloud, and cybersecurity names will lead the climb, while Uber and Lyft represent the best reopening plays, they added.Valuation concerns are valid, but secular trends lifting the group will offset such worries, according to Wedbush. Sign up here for our daily newsletter, 10 Things Before the Opening Bell.The trends poised to lift all manner of tech stocks are only just beginning, Wedbush analysts Dan Ives and Strecker Backe said.
Equity investors are in the midst of a transition. While tech mega-caps and other growth stocks led the bulk of last year's rally, expectations for a swift economic reopening recently shifted attention toward companies set to benefit most from a recovery. Value and cyclical names have roared higher and left tech names lagging.
Wedbush doesn't expect the underperformance to last. Blowout earnings from pandemic-darling Zoom show tech stocks are set for another quarter of "beat and raise" reports, the analysts said. Digital transformations will take hold soon after and lift tech stocks by 25% or more over the next 12 months, they added.
"As we have witnessed in the cloud, collaboration, cybersecurity, and 5G, this tech party is just getting started with consumer and enterprise-driven demand catalyzing a multi-year growth boom for the tech sector looking ahead," the team said.
Wedbush sees FAANG, cloud, and cybersecurity stocks leading the charge. Disruptive recovery names like Uber and Lyft are the firm's favorite reopening plays, as lifted restrictions will likely revive ridership.
The political backdrop also lends itself to continued strength in tech stocks, according to Wedbush. The Biden administration will likely have a softer tone against China and ease tensions in the "Cold Tech War," the analysts said. The 2020 SolarWinds hack also places a fresh focus on cybersecurity efforts in government, they added.
To be sure, the tech sector still enjoys elevated valuations following last year's rally. Debate over the stocks' pricing will continue, but Ives and Backe expect the group to swing higher even in the face of the broader rotation to value.
"We believe the underlying fundamental stories and white-hot growth creates a yellow brick road to an upward bullish trend," they said.