These Wall Street analysts explain why they think tech is headed for a huge rebound in 2023 after the 'carnage' in the market this year
- Tech companies saw a challenging 2022 and many believe the hardships will continue.
- But analysts at Wedbush say tech will grow in 2023, with nowhere to go but up.
There's a lot of doom and gloom around the prospects for the tech sector after a year that saw companies like Meta and Amazon slash jobs as their stock prices fell. But in a new note to clients, analysts at Wedbush say that amid the 'carnage' comes the opportunity for growth in 2023.
Analysts Dan Ives and John Katsingris of Wedbush Securities see the potential for 20% growth in tech in 2023 thanks partly to what they see as the combination of a brewing storm of mergers coming in the next year, cost-cutting from large tech companies, and confidence in a strong rebound for key players in the Big Tech, software, and cybersecurity sectors — specifically naming a handful of firms including Salesforce, Microsoft, and Palo Alto Networks.
Ives told Insider that the tech sector is well-positioned to thrive even amid a potential economic downturn. In short, he suggests that many tech stocks are trading at a significant discount to where they could be relatively quickly. All the angst around valuations and macroeconomic conditions are already priced into tech stock prices, Ives suggests, meaning there's nowhere really to go but up.
"Tech valuations are trading below its five-year average, and there's already a pretty low view of the sector, so now is the chance to own a high-quality stock," Ives said.
Ives believes that consumer and enterprise technology are more integral in people's lives than they were in past recessions. So while demand for some services could soften in 2023, customers will continue to pay for products.
Ives and Katsingris singled out Apple as the number-one company to keep tabs on in the new year. Wedbush also said that it expects Microsoft and Salesforce to lead a rebound in the cloud sector and that Palo Alto Networks, CyberArk, Checkpoint, and Zscaler are the ones to watch in cybersecurity.
However, Ives expects that social media in general will not fare as well as those particular players. Ives said the drop in digital advertising spending and the fallout from Apple's recent privacy changes continue to hurt companies like Meta and Snap, leading to choppier waters ahead for the space.
Ultimately, Wedbush believes next year will favor companies with management teams that can capably navigate the stormy seas of the macroeconomic environment. Ives said Meta, Microsoft, Amazon and Google's parent company Alphabet started to cut down on non-strategic costs in recent months, making them well-positioned to weather any economic storm.
They are not the only ones taking a rosier view of the prospects for next year. Insider's Eugene Kim wrote that some Amazon economists don't see a recession as likely, and even if it does, Amazon will not feel as much pain as more customers have come aboard and have made the company more profitable.
Whichever way 2023 shakes up, Ives thinks there's no reason to miss out on tech stocks next year.
"Downturns create the best opportunities," he said.
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