Investors in tech have not had a fantastic start to 2022: The Nasdaq Composite, which is heavily weighted toward technology, has been down 4.5 percent since New Year's Eve, and reductions were expected to continue Monday.
You can mostly blame the Federal Reserve for all of this. The minutes of the central bank's December monetary policy committee meeting, released last week, indicate that the central bank is leaning toward earlier, faster rate rises and eventual quantitative tightening. Friday's US employment report reinforced expectations for a March rate rise.
Many tech corporations' valuations—including stocks supported by Cathie Wood's ARK funds—are based on the expectation of future earnings, and higher long-term Treasury yields often reduce the present value of future income. That's not a good sign.
The most enthusiastic of the tech bulls, on the other hand, is still pawing at the soil. Analyst Dan Ives of broker and investment bank Wedbush has a simple message for investors who want to forget about the Fed: look forward to earnings season.
"In this risk-off environment, the lack of fundamental news for the IT field has fueled a severe wave of selling tech names to begin off the year in 2022 as valuation scrutiny remains front and center for investors," Ives said in a note on Sunday.
"With uneasiness increasing and a white-knuckle situation around tech equities in this tightening Fed backdrop, we regard the approaching earnings season for tech companies as the most essential in many years to reverse the tide and derail the negative sentiment," he said. To get back on a bullish track, Ives believes that tech firms report profits over the next month. Wall Street will need to see a positive 2022 forecast, particularly indicators that the chip shortage is easing.
"In a word, in 2022, we expect a bullish guiding statement from tech management teams, which will be a significant positive stimulus for the tech sector," he added.
Ives did express worry about headwinds from harsher comparables in 2022—in 2021, outstanding profits were compared to an especially pandemic-hit 2020—as well as a pull-forward expenditure dynamic.
"Our recent field tests continue to show significant strength, particularly in software, cyber security, and big data applications into 2022," the analyst added.
He's particularly positive on cloud and software, noting that just 43% of workloads are cloud-based currently, according to Wedbush, but that percentage is expected to rise to 55% by 2022. Amazon.com (AMZN) and Microsoft (MSFT), as well as Alphabet (GOOGL), Oracle (ORCL), and IBM (IBM) should fuel growth, he added.
Apple (AAPL) and Microsoft (MSFT) are Ives' top large-cap stocks, while Zscaler (ZS), Palo Alto Networks (PANW), Tenable (TENB), and CyberArk are his cybersecurity favorites (CYBR).
Wejo (WEJO) and Planet Labs (PL) are two big data companies that the Wedbush analyst favors, and those interested in the metaverse concept should look at Matterport (MTTR).
In the finishing of listing, Pegasystems (PEGA), Progress Software (PRGS), Check Point Software Technologies (CHKP), Consensus Cloud Solutions (CCSI), NICE Systems (NICE), and Ziff Davis (ZD) are among Ives' top companies in terms of value.
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